RV 


THE 


SALES 

TAX 


Exposition  of  the  Theory 
and  Practice  of  This 
Form  of  Taxation 


SIXTH  EDITION 

REVISED  AND  ENLARGED 

June,  1922 


A  Reprint  of  Questions  Received  by 
The  Minneapolis  Tribune 
and 

Answers  by  Hazen  J.  Burton,  Plymouth  Building 
Minneapolis,  Minnesota. 

President  of  The  Plymouth  Clothing  House.  Minneapolis, 

Former  Chairman  of  Committee  on  Taxation  of  the  National  Association 
of  Building  Owners  and  Managers,  Member  of  the  National  Tax  Association 


To  the  hundreds  of  thousands  of  thinking  men  in  the  Undted 
States  who  have  spontaneously  desired  the  One  Per  Cent  Sales  Tax 
as  the  sole  tax  on  Business,  and  the  wide  diffusion  of  elementary 
economic  knowledge,  to  the  end  that  governmental  business  shall  be 
conducted  on  the  same  high  plane  of  honesty  and  accuracy  that 
they  strive  for  in  the  direction  of  their  individual  affairs,  this  Digest 
of  basic  principles  is  respectfully  dedicated. 


“Progress  made  in  any  field  of  human  activity  is  dependent  upon  reliable 
and  accurate  relevant  facts.  By  as  much  as  that  evidence  fails  in  accuracy  or 
extent  the  deficiencies  of  progress  are  measured." — Chief  Justice  Wm.  H.  Taft. 


ARGUMENT  AGAINST  TURNOVER  FEATURE 
OF  SALES  TAX 

The  most  plausible  argument  against  the  sales  tax  is  based  on  the 
turnover  feature,  from  which  most  of  its  advantages  are  derived.  If  a  shoe, 
manufacturer  sells  directly  to  the  consumer,  one  tax  being  paid,  another 
shoe  manufacturer  and  the  retailer  to  whom  he  sells  are  at  a  serious  disad¬ 
vantage,  so  it  is  said,  because  between  them  they  pay  two  taxes.  Of  course, 
they  do  not  pay  twice  as  much  tax,  for  the  selling  price  to  the  retailer,  on 
which  one  tax  is  based,  would  be  less  than  the  retailer’s  price  to  the  con¬ 
sumer,  on  which  the  second  tax  is  based.  In  fact,  even  where  a  number  of 
turnovers  occur  it  has  been  computed  that  seldom,  if  ever,  does  the  aggre-f 
gate  tax  exceed  3J  per  cent  of  the  final  selling  price. 

But  the  sufficient  answer  to  this  charge  of  possible  discrimination  is 
that,  taking  everything  into  consideration,  it  is  unimportant.  If  a  manu-j 
facturer  and  retailer  can  now  compete  with  a  manufacturer  who  sells  to 
the  public,  as  they  can  and  do,  earning  their  double  profits  and  paying  their 
theoretically  double  overhead  expenses,  a  difference  of  a  fraction  of  1  per 
cent  in  the  tax  can  be  readily  adjusted.  Methods  of  doing  business  are  a 
matter  of  choice,  dependent  upon  location  and  a  variety  of  other  factors, 
the  least  of  which  would  be  this  difference.  The  Harvard  Bureau  of  Busi¬ 
ness  Research  in  a  survey  of  197  retail  shoe  stores  found  that  the  percent¬ 
age  of  operating  expenses  to  net  sales  ranged  from  13.62  per  cent  to  35.63 
per  cent,  a  variation  of  22  per  cent.  A  1  per  cent  sales  tax  is  obviously 
negligible. 

REMOVE  THE  PRESENT  TAX  COST  SPREAD 

JThe  High  Rate  and  Uncertainty  of  Taxation  is  the  chief  cause  of  the 
present  Business  Stagnation.  Substitute  the  Low  Rate  and  Certainty  of  a 
widespread  One  Per  Cent  Sales  Tax  on  the  turnover  of  all  commodities  for 
the  present  extreme  surtax  on  income  of  individuals  and  for  at  least  one-half 
of  the  high  rate  of  12*4  per  cent  on  income  of  corporations.  Such  a  Tax  will 
remove  the  present  Tax  Cost  Spread  between  the  price  received  by  the  Farmer 
for  basic  products  and  the  retail  prices  the  farmer  and  all  other  consumers 
now  pay  for  the  manufactured  articles. 

$  Indicates  addition  and  revision  for  Fifth  Edition,  May  1,  1922. 


THE  SALES  TAX 


Exposition  of  the  Theory  and  Practice  of  this  Form  of  Taxation 


Note.  The  following  series  of  Articles  on  Sales  Tax ,  Chapters  i 
to  17,  from  the  Minneapolis  Tribune  also  appeared  on  same  days,  tri¬ 
weekly,  in  the  Chicago  Daily  Nezvs,  Toledo  Blade,  New  Orleans  Times- 
Picayune,  and  other  western  papers  of  wide  circulation.  These  pam¬ 
phlets  were  prepared  for  the  members  of  the  National  Tax  Association 
at  its  Annual  Conference  at  Minneapolis,  Minn.,  Sept.  18-22,  1922. 

Additional  copies  of  this  enlarged  Sixth  Edition  will  cost  Seven 
Cents  each  in  any  quantity,  which  includes  postage  (2.  cents)  prepaid. 
Address  Hazen  J.  Burton,  Plymouth  Bldg.,  Minneapolis,  Minn. 


August  1,  1921. 

$  Chapter  !. 

Mr.  Mellon  says  that  the  government  will 
require  in  the  neighborhood  of  $4,000,000,000 
within  the  next  fiscal  year.  The  present  sys¬ 
tem  of  taxation  is  not  calculated  to  produce 
this  revenue  without  at  the  same  time  rob¬ 
bing  industry  of. its  earnings  to  such  an  ex¬ 
tent  as  to  affect  it  unfavorably  and  delay  the 
restoration  of  normal  conditions,  so  neces¬ 
sary  to  the  general  welfare. 

With  the  realization  that  some  new  system 
must  be  devised  to  yield  the  necessary  reve¬ 
nues  for  the  government  there  has  been  much 
study  of  taxation  methods,  and  a  large  group 
of  the  students  of  taxation  have  proposed  what 
is  known  as  the  sales,  or  turnover  tax. 

Hazen  J.  Burton  of  Minneapolis  has  con¬ 
sented  to  answer  questions  regarding  the  sales 
tax,  and  ail  those  who  desire  information  are 
invited  to  ask  questions  through  The  Tribune, 
which  Mr.  Burton  will  undertake  to  answer  in 
order  to  instruct  people  with  regard  to  it. 
Such  questions  should  be  addressed  to  the 
Taxation  Editor  of  The  Tribune. 

The  first  of  the  series  of  questions  and  an¬ 
swers  is  as  follows. — The  Editor. 

Q — What  is  a  sales  tax? 

A — A  sales  tax  is  a  tax  on  the  sales 
of  all  goods,  wares  and  merchandise 
levied  at  the  time  of  the  transfer  of 
the  property  from  the  seller  to  the 
buyer. 

Q — What  is  the  specific  form  of  a 
sales  tax  now  being  advocated? 

A — A  tax  on  all  gross  sales  of  not 
exceeding  1  per  cent,  with  no  exemp¬ 
tions  except  to  an  amount  not  exceed¬ 
ing  $6,000  of  annual  sales. 


Q — How  would  a  tax  of  this  kind  be 
collected? 

A — It  would  be  easily  collectible. 
No  stamps  or  receipts  would  be  used. 
It  would  be  collected  and  remitted  to 
the  government  by  the  merchant  on 
monthly  or  quarterly  statements  from 
the  merchant’s  books. 

Q — How  much  revenue  would  a 
sales  tax  produce? 

$A — Experts  have  determined  that  a 
turn-over  sales  tax  of  1  per  cent, 
on  commodities  would  raise  in  the 
neighborhood  of  $1,000, 000, 000. 

Q — How  is  the  United  States  gov¬ 
ernment  now  raising  its  revenues? 

JA — It  has  a  patchwork  system  of 
taxation.  There  is  the  income  tax, 
inheritance  taxes,  many  excise  taxes, 
which  are  in  reality  sales  taxes,  and 
customs  duties. 

Q — Would  a  sales  tax  take  the  place 
of  all  these? 

A — It  would  not.  Advocates  of  the 
sales  tax  believe  that  the  graduated 
personal  income  tax,  with  certain 
modifications,  should  remain  as  an 
equalizer.  They  believe  that  certain 
longstanding  excise  taxes  might  be 
continued.  They  would  not  disturb 
the  inheritance  taxes  except  perhaps 
to  revise  them.  The  excess  profits 
tax  has  been  abandoned. 

$Q — What  was  the  matter  with  the 
excess  profits  tax? 


^Indicates  addition  and  revision  for  Sixth  Edition,  June,  1922. 


A — Originally  devised  as  an  emer¬ 
gency  measure  during  the  war,  it  has 
had  the  effect  of  stifling  American  in¬ 
dustry.  It  is  now  counted  a  failure 
both  by  government  officials  and  busi¬ 
ness  men  generally.  Calculated  to  tax 
capital,  it  has  only  served  to  retard 
trade  and  contribute  to  prolonged 
business  depression. 

%Q — Is  there  any  general  demand 
that  the  excess  profits  tax  be  re¬ 
stored? 

A — There  is  not.  The  sentiment  as 
expressed  before  congressional  com¬ 
mittees  is  all  against  its  retention. 

— From  The  Minneapolis  Tribune. 

August  3,  1921. 

Chapter  II. 

Q.  Is  there  any  difference  between 
a  sales  or  turnover  tax? 

A.  A  sales  tax  can  be  applied  to 
each  sale  cr  business  transaction 
while  a  turnover  tax  is  just  what  its 
name  implies — a  tax  on  the  aggregate 
business  for  a  month  or  any  other 
specified  period.  The  terms  have  be¬ 
come  almost  interchangeable,  how¬ 
ever.  The  tax  now  being  proposed, 
while  known  as  a  sales  tax,  is,  more 
properly,  a  turnover  tax. 

Q.  Are  these  sales  taxes  now  be¬ 
ing  levied  in  the  United  States? 

A.  There  are  over  50  such  taxes. 
Automobiles,  jewelry,  tires,  soft 
drinks  and  a  number  of  other  things 
are  subject  to  sales  taxes,  but  these 
taxes  run  from  5  to  10  per  cent,  and 
in  many  cases  to  higher  percentages. 

Q.  Are  many  other  countries  now 
employing  the  sales  or  turnover  tax? 

A.  Yes.  Canada  has  a  limited 
turnover  tax.  France  is  trying  it  out 
in  a  modified  form.  The  most  con¬ 
spicuous  example  of  the  successful 
operation  of  a  sales  or  turnover  tax 
is  found  in  the  Philippine  Islands. 

Q.  Is  it  true  that  taxes  are,  in  the 
main,  shifted  to  the  consumer? 

$A.  That  is  true.  It  has  been  defi¬ 
nitely  established  that  the  excess 
profits  tax  has  been  shifted  to  the  ul¬ 
timate  consumer  in  the  form  of  higher 
prices. 

Q.  What  has  been  the  effect  on 
prices  of  this  shifting? 

A.  There  has  been  pyramiding  of 
the  tax  to  an  alarming  extent.  Natu¬ 
rally,  the  dealers  in  various  commodi¬ 


ties  have  tried  to  estimate  what  their 
tax  would  be  and  have  added  to  their 
prices  in  proportion,  to  protect  them¬ 
selves  from  loss.  Each  dealer  has 
done  this  in  turn  so  that  when  the 
commodity  has  reached  the  ultimate 
consumer  the  price  has  been  pyra¬ 
mided  very  high. 

Q.  Have  any  estimates  of  the  ex¬ 
tent  of  this  pyramiding  been  made? 

A.  Experts  have  figured  that  of  the 
high  prices  paid  during  the  war,  fully 
23  per  cent,  has  been  due  to  the  py  ra¬ 
miding  process  by  dealers  providing 
for  their  tax  costs. 

Q.  Would  a  sales  tax  be  shifted  to 
the  consumer? 

$A.  In  most  cases  it  would,  but 
there  would  be  no  opportunity  for 
pyramiding  beyond  1  per  cent,  on 
each  process.  The  dealer  would  al¬ 
ways  know  just  what  to  charge.  His 
tax  of  1  per  cent,  on  gross  sales  is 
fixed.  The  small  tax  would  be  ab¬ 
sorbed  by  seller  where  profits  were 
good. 

Q.  In  order  to  show  just  how  much 
of  a  sales  or  turnover  tax  would  be 
paid  on  a  suit  of  men’s  clothes,  give 
an  example  showing  the  various 
transactions. 

A.  William  Goldman  of  New  York 
has  made  the  following  table  showing 
the  effect  on  a  1  per  cent,  sales  or 
turnover  tax  on  a  suit  of  men’s 
clothing  designed  to  retail  at  $60. 

Tax  at  1  pet. 


1.  Raw  wool  in  the  grease,  value  about 

$6.50  .  $.065 

2.  The  wool  dealer  has  the  wool  scoured 

and  sells  it  to  the  spinner,  at  say 

$8.00  . . . 080 

3.  The  spinner  converts  it  into  yarn 

and  sells  it  to  the  cloth  manufac¬ 
turer  for  say  $10.00 . 1000 

4.  The  cloth  manufacturer  weaves  it 

into  cloth  which  he  sells  for  about 

$4  a  yard,  3%  yards.....' . 1333 


5.  Trimmings,  linings,  etc.,  have  a 
value  of  about  50  per  cent  of  the 
value  of  the  cloth,  and  have  gone 
through  the  same  processes  of 


conversion  as  the  wool  has  to  the 
finished  cloth.  The  tax  on  these 
would  therefore  be  50  per  cent  of 
the  sum  total  of  the  foregoing 
taxes,  or  . 1 . - . 1891 

6.  These  materials  are  converted  into  a 

suit  of  clothes  by  the  manufac¬ 
turer,  who  sells  it  for  $40 . 4000 

7.  The  suit  is  sold  at  retail  for  $60 . 6000 

Total  tax  on  price  for  consump¬ 
tion  . $1.5674 

Or  2.61  per  cent  of  the  price,  $60,  to  the 
consumer. 


Or  2.34  per  cent  of  the  present  price,  $40, 
to  consumer. 


^Indicates  addition  and  revision  for  Fifth  Edition,  May  1,  1922. 

2 


Notice  that  the  percentage  has  been  reduced 
from  that  shown  in  the  original  estimate  made 
a  year  ago.  This  is  due  to  the  fact  that  raw 
materials  are  now  abnormally  low,  whereas 
manufacturing  processes,  which  include  labor 
and  taxes,  have  scarcely  been  reduced  at  all. 

— From  the  Minneapolis  Tribune. 

August  6,  1921. 

Chapter  III. 

$Q.  Would  men  rendering  profes¬ 
sional  services,  and  bankers,  commis¬ 
sion  men  and  others  be  taxed?  Would 
wages  and  salaries  be  taxed? 

A  A.  They  would  not  be  subject  to 
the  sales  or  turnover  tax  but  would 
be  taxed  as  personal  incomes. 

Q.  If  a  sales  tax  is  substituted  for 
a  profits  tax  oh  business  ought  the 
present  exemptions  on  personal  in¬ 
comes  to  be  ..increased? 

A.  The  revenues  derived  from  a 
sales  tax  would  be  large  enough  to 
permit  raising  the  present  exemp¬ 
tions  on  personal  incomes. 

Q.  What  would  be  the  object  of  in¬ 
creasing  the  exemptions  on  personal 
incomes? 

A.  The  fair  rule  in  all  taxation  is 
the  “ability  to  pay.”  The  revenue 
law  of  1913  fixed  exemptions  for  sin¬ 
gle  persons  at  $3,000  and  for  married 
persons  at  $4,000.  The  war  made 
lower  exemptions  necessary.  The  war 
period  has  passed.  It  is  true  the  war 
debts  must  be  paid,  but  a  longer  time 
can  be  taken.  Exemptions  could  well 
be  fixed  at  the  pre-war  levels,  or  even 
higher.  It  has  been  suggested  there 
be  exemptions  on  incomes  of  $4,000 
for  single  persons  and  $5,000  for  mar¬ 
ried  persons. 

Q.  Would  the  imposition  of  a  sales 
tax  encourage  thrift? 

A.  It  certainly  would.  The  per¬ 
sons  who  buy  many  things,  including 
many  luxuries,  would  have  to  pay 
more  in  sales  taxes  than  those  who 
did  not  purchase  as  much.  In  fact, 
the  sales  tax  is  founded  on  the  basic 
theory  of  the  “ability  to  pay.” 

Q.  How  will  the  sales  tax  be  col¬ 
lected? 

$A.  The  tax  is  paid  to  the  govern¬ 
ment  on  total  sales  of  commodities. 

Q.  How  often  would  the  tax  be 
paid? 

^  A.  It  would  be  paid  either  month¬ 
ly  or  quarterly;  preferably  monthly. 


Q.  How  would  this  help  the  gov¬ 
ernment? 

A.  Instead  of  having  its  income  - 
coming  in  the  year  after  the  taxes  are 
levied,  the  government  would  receive 
hundreds  of  millions  of  dollars  each 
month  of  the  year.  There  would 
not  be  the  constant  need  of  the  issu¬ 
ance  of  short  tijne  treasury  certificates 
at  high  interest  rates,  in  anticipation 
of  taxes  to  be  collected  in  the  future. 

— From  The  Minneapolis  Tribune. 

August  8,  1921. 

Chapter  IV. 

Q.  How  can  the  American  farmer 
be  benefited  by  the  substitution  of 
one  per  cent,  sales  tax  for  all  present 
taxes  on  business? 

A.  First,  the  farmer  is  a  large 
buyer  of  manufactured  products.  He 
will  benefit  by  the  reduction  of  prices 
in  these  products.  He  will  no  longer 
pay  the  increased  prices  due  to  the 
pyramiding  of  the  excess  profits 
taxes. 

Q.  Would  all  farmers  be  subject  to 
a  sales  tax  on  the  sale  of  their  prod¬ 
ucts  ? 

t A.  All  products  sold  for  export  are 
exempt  in  taxation  and  furthermore  it 
is  proposed  that  all  sales  of  every  na¬ 
ture  not  exceeding  $6,000  a  year  be 
exempt  from  the  sales  tax.  It  is  cal¬ 
culated  that  the  great  majority  of 
farmers  and  small  business  men 
would  thus  pay  no  sales  tax.  In  fact, 
many  advocates  of  the  turnover  tax 
would  exempt  all  farm  products. 

Q.  Will  farmers  gain  by  simplified 
!  methods  of  taxation? 

A.  The  farmer  is  in  reality  a  busi¬ 
ness  man.  A  simplified  method  of 
taxation  will  aid  him  as  it  will  every 
other  class  of  citizen. 

Q.  What  taxes  are  now  shifted  to 
the  farmer? 

$A.  First,  there  have  been  the  ex¬ 
cess  profits  taxes  which  were  shifted 
and  pyramided  by  every  manufacturer 
and  dealer  along  the  line.  Then  there 
are  the  special  excise  taxes.  He  pays 
these  special  taxes  on  his  automobile, 
his  tires,  motor  accessories,  his  watch, 
his  wife’s  fur  coat,  his  chewing  gum, 
movie  tickets,  sodas  and  soft  drinks 
and  a  host  of  other  things  which,  in 
common  with  all  other  classes,  he 
buys  for  his  comfort.  These  special 
excise  taxes  amount  to  from  10  to  20 
cents  on  every  dollar. 


^Indicates  addition  and  revision  for  Fifth  Edition,  May  1,  1922. 


3 


Q.  Would  the  farmer  be  the  losei 
by  the  imposition  of  a  sales  tax? 

A.  On  the  contrary,  as  a  heavy 
consumer  he  would  be  the  distinct 
gainer. 

Q.  Do  the  farmers  know  that  their 
indirect  consumption  taxes  have  been 
large  because  of  the  shifting  of  the 
burdens  from  dealer  to  dealer? 

A.  The  farmer  is  awakening  to  the 
actual  facts.  Farmers  know  that  tax¬ 
es  have  been  shifted  to  them.  They 
know  that  the  business  taxes  are  not 
borne  solely  by  corporations,  partner¬ 
ships  and  sole  traders. 

Q.  Do  the  arguments  cited  in  re¬ 
gard  to  the  farmer  apply  equally  to 
the  laboring  man  in  the  cities? 

A.  They  do.  The  laborer  in  the 
city  is  now  subjected  to  heavy  indi¬ 
rect  taxes  just  as  is  the  farmer.  The 
sales  tax  would,  in  most  instances, 
be  shifted  to  him.  But  instead  of  pay¬ 
ing  a  pyramided  tax  amounting  to 
more  than  20  per  cent.,  according  to 
the  most  painstaking  estimates,  he 
would  pay  a  tax  that  could  not  be 
pyramided  higher  than  SV2  per  cent. 

— From  The  Minneapolis  Tribune. 

August  10,  1921. 

Chapter  V. 

Q.  If  a  sales  or  turnover  tax  were 
adopted,  would  the  consumer  pay  one 
per  cent,  tax  on  each  article  he  buys? 
For  instance,  if  he  purchased  an  ar¬ 
ticle  selling  for  10'  cents,  would  he 
have  to  pay  an  additional  one  cent 
as  a  tax,  making,  in  reality,  a  10  per 
cent  tax? 

A.  That  is  not  the  plan  of  the  sales 
or  turnover  tax.  The  turnover  tax  is 
a  tax  on  the  entire  gross  sales  of  a 
merchant  for  a  month.  His  prices 
would  naturally  be  so  arranged  as  to 
take  care  of  the  one  per  cent,  on  the 
whole  volume  which  the  government 
would  receive.  If  the  merchant  did 
a  business  of  $1,000  in  the  month  he 
would  pay  the  government  a  tax  of 
$10.  His  prices  would  naturally  have 
been  arranged  to  cover  that  $10. 

Q.  Can  a  general  gross  sales  or 
turnover  tax  be  administered  without 
increasing  the  burden  of  the  Internal 
Revenue  department? 

A.  The  adoption  of  this  form  of 
taxation  in  place  of  the  present  taxes 
on  profits  would  certainly  simplify  the 


work  and  therefore  greatly  decrease 
the  burden  of  the  Department  of  In¬ 
ternal  revenue.  The  department  is 
now  way  behind  in  its  work  of  check¬ 
ing  returns  on  profits  taxes.  Dr. 
Thomas  S.  Adams,  formerly  chairman 
of  the  tax  advisory  board  of  the  Unit¬ 
ed  States  government,  in  an  article 
in  the  New  York  Evening  Post,  Au¬ 
gust  4,  1920,  said:  “In  the  long  run 
a  general  sales  tax  in  place  of  the 
income  and  profits  taxes  would  great¬ 
ly.  simplify  the  work  of  the  bureau  of 
Internal  Revenue.” 

Q.  Could  the  sales  tax  be  applied 
to  the  Grain  Trade,  especially  option 
transactions?  If  so,  how? 

A.  The  sales  tax  as  now  advocated 
would  not  be  applied  to  the  sales  of 
securities  or  of  contracts  on  produce 
exchanges.  The  reason  for  this,  brief¬ 
ly,  is  that  the  rate  would  prevent  the 
transaction  and  would  not  produce  the 
revenue.  Every  tax  has  a  maximum 
revenue  point  beyond  which  an  in¬ 
crease  in  the  rate  tends  to  diminish 
the  revenue,  and  it  also  has  a  poten¬ 
tial  maximum  where  it  is  actually  de¬ 
structive  of  the  object  of  the  tax. 

Q.  Why  cannot  a  sales  tax  be  ap¬ 
plied  to  exports? 

A.  Article  1,  Section  IX  of  the  con¬ 
stitution  of  the  United  States  provides 
that  no  tax  or  duty  shall  be  laid  on 
articles  exported  from  any  state  in 
the  Union. 

— From  The  Minneapolis  Tribune. 

August  12,  1921. 

Chapter  VI. 

Q.  Why  does  the  Tax  league  advo¬ 
cate  a  specific  exemption  of  $6,000 
annual  sales  in  advocating  the  gross 
sales  tax? 

A.  The  reason  for  fixing  the  ex¬ 
emption  at  $6,000  is  that  this  will  as¬ 
sist  small  dealers  and  farmers  and 
encourage  thrift  and  enterprise 
among  business  beginners  in  their 
struggle  with  competition.  It  was  felt 
that  there  should  be  some  exemption 
and  $6,000  was  fixed  as  a  proper 
amount  to  accomplish  the  ends  men¬ 
tioned. 

JQ.  Dr.  Joseph  McCoy  has  given  us 
what  is  considered  the  most  reliable 
estimate  of  the  yield  of  a  1  per  cent, 
tax  covering  sales  of  all  kinds  by 
traders,  manufacturers,  mines  and 


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farms  of  $1,100,000,000.  This  estimate 
is  considered  by  Treasury  officials  as 
being '  one  of  the  most  reliable  that 
has  been  made. 

Is  it  not  a  dangerous  and  unwise 
move  to  have  the  government  re¬ 
lying  on  a  single  tax  for  a  large  por¬ 
tion  of  its  revenue?  Again,  is  it  not  a 
fact  that  the  yield  of  any  tax  fluctuates 
with  the  changes  occurring  in  the 
object  to  which  the  tax  rate  is  applied, 
thus  causing  the  national  revenue  to 
be  uncertain? 

X  A.  The  widespread  application  of 
this  tax  is  one  of  the  strongest  points 
in  its  favor.  It  is  universal  in  its 
scope  and  therefore  does  not  mean 
that  the  government  is  relying  upon 
the  tax  upon  any  one  commodity  or 
group  of  commodities.  Furthermore, 
if  it  found  that  1  per  cent,  rate  would 
raise  too  much  revenue,  the  rate  could 
be  made  one-half  of  1  per  cent.  It  is 
true  that  the  yield  of  any  tax  fluctu¬ 
ates  with  the  changes  occurring  in 
the  object  to  which  the  tax  is  applied, 
but  the  national  revenue  could  cer¬ 
tainly  be  far  more  reliable  than  it  is 
now  under  the  existing  profits  taxes 
where  there  is  much  revenue  one  year 
and  little  or  none  the  next. 

— From  The  Minneapolis  Tribune. 

August  15,  1921. 

Chapter  VII. 

Q.  Where  such  a  staggering  sum 
of  money  must  be  raised  annually 
through  such  means  of  taxation  as  the 
government  requires,  is  it  not  a  wise 
provision  to  have  the  tax  apply  over 
a  wide  range  of  objects  instead  of  be¬ 
ing  confined  to  only  a  -few? 

tA.  That  is  just  the  plan  of  the 
sales  tax.  It  covers  all  commodities. 
It  is  thus  diffused  over  a  wide  range 
of  objects  and  is  not  confined  to  only 
a  few. 

Q.  If  a  sales  tax  law  as  proposed 
should  be  passed  would  it  correct  to 
any  extent  the  patchwork  system  of 
raising  the  government’s  revenue  now 
in  use? 

A.  It  is  a  tax  to  take  the  place  of 
the  present  patchwork  system  of  rais¬ 
ing  the  government’s  revenue  now  in 
use.  It  could  take  the  place  of  many 
of  the  present  taxes. 

Q.  Is  it  possible  under  our  present 
tax  law  to  make  returns  which  are 


correct  both  from  the  standpoint  of 
the  government  and  of  the  taxpayer? 

A.  Judging  from  the  experience  of 
the  past  two  years,  it  is  almost  im¬ 
possible  to  do  so.  Corporations,  part¬ 
nerships  and  individuals  have  hired 
attorneys  and  expert  accountants  to 
make  up  their  tax  returns  and  in  spite 
of  this  the  government  has  collected 
hundreds  of  millions  of  dollars  due  to 
incorrect  tax  returns,  which  it  has 
stated  are  not  fraudulent,  but  merely 
mistaken.  It  has  announced  that  it 
expects  to  collect  many  hundreds  of 
millions  more  when  back  returns  have 
been  checked  up.  Most  corporations 
have  not  had  their  books  inspected 
on  later  than  their  1917  returns. 

Q.  Why  should  the  government 
collect  such  huge' amounts  of  arrears 
of  taxes  as  it  now  is  collecting  under 
the  revenue  acts  of  1917  and  1918? 

A.  The  revenue  act  is  so  difficult 
to  understand  that  even  the  advice 
of  highly-paid  experts  has  not  pro¬ 
tected  the  taxpayers  against  errors  in 
making  their  returns. 

Q.  What  has  been  the  experience 
in  the  Philippine  Islands  regarding 
administration  of  the  sales  tax? 

A.  In  reply  to  an  official  inquiry 
made  by  Secretary  Houston,  the  Phil¬ 
ippine  government  stated  that:  “The 
sales  tax  is  the  most  satisfactory,  ac¬ 
curate,  economical,  productive  and 
equitable  tax  in  our  system.” 

This  tax  has  been  in  force  in  the 
islands  since  1905  and  has  proven  a 
complete  success. 

Q.  What  is  the  Canadian  sales 
tax? 

A.  This  tax  is  applicable  to  sales 
by  manufacturers,  wholesalers  or  job¬ 
bers,  and  is  payable  on  all  goods  or 
articles  which  are  not  specifically  ex¬ 
empted.  The  sales  tax  is  cumulative 
in  effect,  the  rate  of  tax  being  1  per 
cent,  on  sales  and  deliveries  by  man¬ 
ufacturers,  wholesalers  or  jobbers; 
but,  in  respect  to  sales  by  manufac¬ 
turers  direct  to  retailers,  or  to  con¬ 
sumers,  and  on  importations  by  a  re¬ 
tailer  or  consumer,  the  rate  is  2  per 
cent.  Exports  are  exempted  from  the 
sales  tax. 

— From  The  Minneapolis  Tribune. 


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August  17,  1921. 

Chapter  VIM. 

Q.  Is  it  not  a  fact  that  the  sales 
tax  is  fundamentally  based  on  needs 
rather  than  the  ability  to  pay? 

\  A.  The  sales  tax,  plus  the  personal 
income  and  inheritance  taxes,  are  re¬ 
quired  by  the  needs  of  the  govern¬ 
ment  and  are  fundamentally  based  on 
the  ability  to  pay  of  all  the  taxpayers 

Possession  of  property  is  evidence 
of  ability  to  pay  these  cash  taxes  from 
the  cash  sales  of  business  and  from 
the  cash  incomes  of  individuals.  The 
correct  valuation  of  property  is  its 
net  cash  value  at  time  of  sale,  when 
both  buyer  and  seller  determine  that 
it  is  for  the  best  interests  of  each  that 
such  sale  be  made  at  that  time.  The 
almost  negligible  1  per  cent,  sales  tax 
may  indeed  be  considered  as  an  in¬ 
surance  premium  for  the  continuance 
of  the  stable  government  without 
which  civilization  and  property  values 
would  disappear. 

Every  business  man  will  welcome  a 
uniform  1  per  cent,  rate  of  tax  to  all 
competitors  alike  on  a  property  valu¬ 
ation  determined  by  buyer  and  seller 
at  time  of  sale,  making  a  small  tax 
on  each  individual  business  and  in¬ 
dividual  consumption,  with  no  exemp¬ 
tions  to  any  competitor  greater  than 
$6,000  of  annual  sales.  This  ensures 
compliance  with  the  basic  economic 
principles  of  universality,  equality  of 
taxation  and  ability  to  pay,  as  laid 
down  by  John  Stuart  Mill  and  ac¬ 
cepted  by  all  taxation  authorities. 

Q.  A  sales  tax  is  based  on  the 
mere  form  of  business  transactions. 
Is  it  not  a  fact  that  such  a  method 
of  taxation  will  lead  to  disastrous 
changes  in  business  practices,  and 
eventually,  if  continued,  revolutionize 
our  methods  of  doing  business? 

$A.  The  sales  tax  is  based  on  the 
simple,  certain  fact  of  sale. 

Every  buyer  and  seller  knows  what 
constitutes  a  sale. 

A  small  tax  on  these  certainties  will 
be  vastly  different  from  the  complica¬ 
tions  and  excessive  rates  of  the  pres¬ 
ent  federal  tax  system  which  have  al¬ 
ready  led  to  that  destruction  of  capi¬ 
tal,  general  stagnation  of  enterprise 
and  unemployment  of  labor  which  has 
always  followed  excessive  and  uncer¬ 
tain  taxation. 


“The  heavy  but  indefinable  future 
tax  obligations,”  as  Secretary  .Hous¬ 
ton  has  called  them,  “hang  like  a 
suspended  avalanche  over  American 
business.” 

JThe  tax  would  be  invoiced,  or  in 
other  words  added  at  the  bottom  of 
each  bill  rendered,  as  a  specific  cost 
charge  to  the  purchaser,  all  the  way 
down  the  line  to  the  retail  purchaser, 
in  whose  case  the  tax  would  be  in¬ 
cluded  in  the  cost  and  absorbed  by 
the  retailer. 

— From  The  Minneapolis  Tribune. 


August  19,  1921. 

Chapter  IX. 

Q.  Assuming  that  a  Sales  Tax  is 
an  equitable,  practical  and  sane  method 
of  raising  a  large  per  cent  of  the  re¬ 
quired  revenue,  why  should  bread  and 
common  clothes  be  taxed  at  the  same 
rate  as1  the  sales  of  precious  stones, 
jewelry  and  articles  now  commonly 
classed,  from  a  taxation  standpoint,  as 
luxuries  ? 

A.  So  long  as  the  Sales  Tax  is  ex¬ 
empted  on  all  sales  less  than  $6,000 
per  year,  and  does  not  exceed  one  per 
cent  on  all  business,  and  is  substituted 
for  the  present  grossly  unequal,  exces¬ 
sive  sales  taxes,  there  is  no  reason 
why  sales  of  bread  and  clothes  should 
not  also  be  taxed  at  1  per  cent. 

The  addition  to  the  price  to  the  con¬ 
sumer  of  a  loaf  of  bread  figures  only 
one-sixth  (1-6)  of  a  cent,  and  the  ad¬ 
dition  to  the  price  of  a  $40  suit  of 
clothes  figures  only  ninety-four  cents. 
Much  of  this  would  be  absorbed  in 
good  times  by  the  seller.  And  yet 
politicians  talk  of  a  tax  “upon  the 
backs  and  bellies  of  the  poor  man.” 

Q.  It  is  proposed  to  shift  the  Sales 
Tax.  Is  it  not  a  fact  that  a  tax  can 
be  shifted  only  through  a  rise  in  price 
and  that  this  can  come  about  as  a  re¬ 
sult  of  the  tax  only  through  a  restric¬ 
tion  in  the  supply? 

A.  Every  business  tax  is  shifted.  If 
it  is  not  shifted  business  stagnates. 
A  government  tax  on  business  is  the 
first  lien  on  the  assets  of  every  busi¬ 
ness.  It  is  the  first  cost  in  overhead 
expense.  All  costs  must  be  shifted  to 
the  consumer  or  the  business  fails  to 
pay. 

Former  Congressman  Good,  who  op¬ 
poses  the  sales  tax,  for  political  rea- 


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sons,  says:  “How  would  a  laboring 
man  feel  if  asked,  while  out  of  em¬ 
ployment,  with  only  a  small  or  scarce¬ 
ly  any  income,  to  pay  a  tax  on  every¬ 
thing  that  he  eats  and  everything  that 
he  wears,  not  realizing  that  the  excess 
profits  tax  has  been  passed  on  to  the 
consumer  and  that  in  the  past  he  has 
been  compelled  indirectly  to  pay  it?” 

There  is  a  world  of  wisdom  in  the 
acknowledgment  of  ex-Congressman 
Good,  that  the  laboring  man  does  “not 
realize  that  the  excess  profits  tax  nas 
been  passed  on  to  the  consumer  and 
that  in  the  past  he  has  been  compelled 
to  pay  it.”  This  is,  of  course,  the 
CRUX  OF  THE  QUESTION.  Any  tax 
revision  which  will  actually  lighten  the 
tax  burden  of  the  consumer  wThile  get¬ 
ting  revenue  for  the  government,  must 
appeal  to  all.  The  lighter  the  tax  bur¬ 
den  is  on  the  consumer,  the  greater 
will  be  his  purchasing  power,  and  in- 
ceased  purchasing  power  means  more 
and  better  business.  The  issue  is  the 
actual  fact  about  the  present  federal 
taxes  versus  the  actual  fact  regarding 
a  small  turnover  tax. 

Q.  Professor  Friday  tells  us  in  his 
“Profits,  Wages  and  Prices”  that  the 
price  level  of  commodities  began  to 
rise  in  1915,  'two  years  before  the  1917 
excess  profits'  tax  law  was  passed,  and 
that  by  1917  the  price  level  stood  at 
181  compared  with  100  in  1913.  We 
know  the  1918  excess  profits  tax  rates 
were  increased  and  that  the  1919  rates 
were  greatly  reduced.  We  also  know 
prices  continued  to  rise  all  during  the 
1915-1919  period,  the  level  being  238 
in  December,  1919,  and  266  in  April, 
1920.  We  know  the  1920  fall  in  prices 
was  not  preceded  by  any  reduction  in 
excess'  profits  tax  rates.  Does  the 
above  not  indicate  there  is  no  correla¬ 
tion  between  price  movements  and 
taxation? 

A.  The  world-wide  laws  of  supply 
and  demand  are  the  chief  causes  of 
wide  fluctuations  in  price  movements 
of  commodities  and  of  labor. 

But  there  is  a  distinct  relation  be¬ 
tween  existing  federal  taxes  and  the 
present  uncertainties  and  stagnation 
of  business. 

By  substituting  the  sales  tax  the 
saving  in  tax  costs  to  all  consumers 
alike  averages  over  20  per  cent  on  all 
purchases. 


This  saving  is  independent  of  any 
price  fluctuations  in  commodities 
caused  by  the  lav/  of  supply  and  de¬ 
mand. 

Authorities  on  the  sales  tax  empha¬ 
size  the  point  that  this  20  per  cent 
tax  cost  difference  between  the  pyra¬ 
mided  existing  federal  taxes  and  the 
pyramided  1  per  cent  sales  tax  must 
surely  continue  to  hold  down  and  de¬ 
press  the  prices  of  wheat,  wool,  cot¬ 
ton  and  all  basic  farm  products  as 
well  as  to  hold  up  and  perhaps  ad¬ 
vance  again  retail  prices  of  finished 
goods  to  the  ultimate  consumer. 

— From  The  Minneapolis  Tribune. 

August  22,  1921. 

Chapter  X. 

Q.  Is1  it  not  true  that  during  the 
1915-1919  period  there  was  a  tremend¬ 
ous  expansion  of  industry  and  busi¬ 
ness  enterprises,  paid  for  out  of  the 
profits  remaining  after  the  income  and 
excess  profits  taxes  had  been  paid, 
and  that  there  has  been  more  than 
sufficient  profit  to  induce  enterprise? 

A.  This  hypothesis  and  conclusion 
does  not  rest,  in  my  opinion,  upon  a 
sound  statement  of  facts,  outside  of 
war  activities. 

Q.  Is  it  not  a  fact  that  the  substi¬ 
tution  of  the  sales  tax  for  the  excess 
profits  tax  and  all  or  a  portion  of  the 
income  tax  will  transfer  the  tax  bur¬ 
den  from  the  richer  classes  to  the 
poorer  classes? 

If  such  a  burden  is  so  transferred 
is  it  not  a  fact  that  it  will  have 
a  tendency  to  materially  reduce  the 
amount  of  goods  poorer  classes  will 
consume  by  reason  of  their  having  to 
take  a  large  portion  of  their  aggregate 
income  to  pay  this  additional  burden? 

JA.  The  advocates  of  a  small  di¬ 
rect  sales  tax  at  1  per  cent  or  less 
heartily  support  the  personal  income 
tax  as  an  equalizer,  and  at  the  same 
time  are  equally  desirous  of  a  reason¬ 
able  duty  on  competitive  imports,  in¬ 
heritance  taxes  and  graduated  taxes 
on  personal  incomes,  graduated  to  the 
highest  point  at  which  such  a  tax  can 
be  levied  and  collected  from  the  rich, 
with  increased  exemptions  for  the 
single  man  to  $2,500  and  for  the  mar¬ 
ried  man  to  $5,000,  with  liberal  provi¬ 
sion  for  dependents.  This  ought  to  pro¬ 
vide  enough  revenue  to  pay  all  the  ex¬ 
penses  of  the  government,  if  reason- 


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able  economy  be  practiced*,  and  to 
gradually  retire  our  huge  national 
debt. 

JQ.  Is  it  not  true  that  where 
the  sales  tax  is  substituted  for  the  ex¬ 
cess  profits  tax  and  a  portion  of 
the  income  tax,  that  the  richer 
class  will  pay  the  sales  tax  on  the 
goods  that  they  consume  thus  dis 
charging  their  tax  liability  (the  sales 
tax  they  thus  pay  merely  replacing  a 
portion  of  the  excess  and  income  taxes 
previously  paid  by  them) ;  but  the 
sales  tax  liability  shifted  to  the  poorer 
classes  serves  as  an  additional  bur¬ 
den  they  must  pay,  being  based  on 
their  needs  instead  of  ability  to  pay 
and  an  additional  burden  over  and 
above  any  carried  heretofore? 

A.  We  again  repeat  that  the  1  per 
cent  sales  tax  is  a  substitute  for  the 
profits  taxes  on  business  and  exces¬ 
sive  special  taxes  on  business,  but  that 
we  also  insist  on  the  retention  of  the 
personal  income  tax  as  an  equalizer, 
graduated  to  the  highest  practicable 
point.  The  book  profits  of  business 
enterprises  should  not  be  taxed  until 
they  are  proved  to  be  actual  cash 
profits,  and  as  such  have  been  paid 
out  in  dividends,  when  they  become 
subject  to  the  graduated  personal  in¬ 
come  taxes  of  the  stockholders. 

Remove  the  academic  antiquated  ob¬ 
stacles  to  business,  which  business 
experience  has  abundantly  discredited. 
Business  will  not  revive  until  Con¬ 
gress  “clears  the  track”  in  compliance 
with  the  political  platform  at  the  last 
presidential  election. 

— From  The  Minneapolis  Tribune. 

August  24,  1921. 

Chapter  XI. 

Q.  Is  it  not  true  that  the  Philippine 
sales  tax  is  a  continuation  of  the  old 
Spanish  taxing  methods;  that  it  is 
subject  to  a  large  number  of  exemp¬ 
tions,  including  agricultural  products 
used  by  farmers  and  other  necessi¬ 
ties? 

JA.  It  is  not  a  continuation  of  the 
Spanish  tax.  The  law  has  been  in  ex¬ 
istence  for  16  years,  and  has  been  suc¬ 
cessful  in  all  respects.  It  is  now  col¬ 
lected  practically  without  a  murmur 
from  the  taxpayer.  The  tax  originally 
was  one-third  of  1  per  cent.  It  since  has 
been  raised  to  1  per  cent  and  we  are 
informed  the  government  of  the 
islands  is  contemplating  raising  it  to 
2  per  cent.  The  law  was  written  by 
John  S.  Hord  and  was  administered  by 


him  as  collector  of  internal  revenue 
for  a  period  of  six  years.  He  says: 

“The  law  is  being  successfully  ad¬ 
ministered  in  the  Philippine  Islands, 
and  is  the  biggest  revenue-producing 
item.  The  whole  tax  burden  is  dis¬ 
tributed  among  all  and  to  each  accord¬ 
ing  to  his  ability  and  willingness  to 
pay.  It  is  not  a  tax  against  the  living 
wage,  and  can  be  defended  on  the 
ground  of  social  justice.  The  tax  rate 
is  small,  and  can  be  shifted  and  is  not 
heavily  accumulative.  It  is  easily  as¬ 
sessed  and  fully  collected  at  a  reason¬ 
able  expense  and  without  harassing 
the  taxpayers.”  There  are  certain  ex¬ 
emptions.  We  exempt  all  farmers  out 
there.  We  consider  that  the  farm  is 
a  basic  industry,  and  they  could  proba¬ 
bly  be  exempted  from  produce  of  their 
own  that  they  sold.  Of  course,  the 
merchant  who  sold  farm  produce  be¬ 
gan  to  pay  the  tax.  There  would  be 
one  less  in  the  line  from  the  producer 
to  the  consumer  in  the  case  of  produce 
raised  in  the  Philippines.  Everything 
imported  would  pay  the  sales  tax, 
sold  by  the  importer  or  by  the  man  he 
sold  it  to.  It  is  really  a  very  simple 
tax.  There  never  was  any  trouble 
about  collecting  it.  It  was  collected 
automatically.” 

Some  time  ago  Secretary  Houston 
made  official  inquiry  of  the  Philippine 
government  as  to  the  success  of  the 
sales  tax  in  the  islands  and  his  reply 
was  “that  the  sales  tax  is  the  most 
satisfactory,  accurate,  economical,  pro¬ 
ductive  and  equitable  tax  in  our  sys¬ 
tem.”  (See  records  of  the  Treasury 
department.) 

The  opponents  of  this  plan  brush 
aside  our  experience  in  the  Philip¬ 
pines  with  a  wave  of  the  hand  on  the 
ground  that  that  archipelago  is  a 
small  country  compared  with  our  own 
and  that  conditions  there  are  quite  dif¬ 
ferent  from  what  they  are  here.  True, 
everything  is  on  a  smaller  scale  there 
than  here,  but,  nevertheless,  we  there 
have  classes  and  conditions  quite  simi¬ 
lar  to  those  we  have  here.  Human 
nature  and  economic  laws  are  the 
same  there  as  here. 

— From  The  Minneapolis  Tribune. 

August  26,  1921. 

Chapter  XII. 

Q.  Does  the  nature,  volume  and 
complexity  of  the  sales  transactions 
of  the  Philippines  bear  close  enough 
relation  and  likeness  to  those  of  the 


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8 


United  States'  to  justify  the  United 
States  in  accepting  and  adopting,  with¬ 
out  question,  the  Philippine  method  for 
raising  the  volume  of  revenue  it  is 
proposed  to  raise  through  a  sales  tax? 

A.  See  previous  chapter.  The  Phil¬ 
ippine  tax  law  is  not  complex.  It  was 
taken  from  Mexico,  where  it  has  been 
in  operation  for  half  a  century  and  was 
utilized  very  effectively  by  President 
Porfirio  Diaz,  and  his  celebrated  minis¬ 
ter  of  finance,  Jose  Yives  Limantour, 
in  the  financial  rehabilitation  of  that 
country.  In  order  that  you  may  have 
an  authoritative  statement  in  regard 
to  the  operation  of  the  sales  tax  in  Mex¬ 
ico,  we  submit  a  letter  on  the  subject 
which  has  just  been  received  from  Se- 
nor  Pascual  Luna  Y  Parra,  who  for 
many  years  was  officially  connected 
with  the  department  of  finance  in  Mexi¬ 
co  under  Diaz  and  Limantour  and  dur¬ 
ing  other  administrations,  and  which 
reads  as  follows: 

“To  the  Tax  League  of  America: 

“Gentlemen:  In  response  to  your  re¬ 
quest  for  information  on  the  subject 
of  the  operation  of  the  sales  tax  law 
in  Mexico,  I  take  pleasure  in  saying 
that  a  general  sales  tax  law  imposing 
a  small  tax  on  sales  of  goods,  wares 
and  merchandise  has  been  in  existence 
continuously  since  February  14,  1856, 
under  the  administration  of  President 
Comonfort, ’and  has  continued  under  the 
administration  of  President  Benito 
Juarez,  Sebastian  Lerdo  de  Tejada,  Por¬ 
firio  Diaz,  and  subsequent  administra¬ 
tions  and  has  uniformly  yielded  satis¬ 
factory  results.  The  amount  of  the  tax 
at  present  is  one-half  of  1  per  cent. 
This  tax  has  been  in  existence  so  long, 
and  the  people  have  become  so  thor¬ 
oughly  accustomed  to  it  that  it  is  col¬ 
lected  without  friction  or  difficulty  of 
any  kind  and  on  account  of  the  amount 
being  so  small  the  consumer  pays  it  un¬ 
consciously.  It  is  economically  collect¬ 
ed  and  uniformly  produces  a  very  im¬ 
portant  item  of  the  revenue. 

Very  sincerely  yours, 

“Pascual  Luna  Y  Parra. 

“New  York,  April  15,  1921.” 

$GEN.  LEONARD  WOOD  ON 
SALES  TAX 

At  a  meeting  of  the  Havana  Cham¬ 
ber  of  Commerce  last  month,  a  tele¬ 
gram  was  received  from  General  Leon¬ 
ard  Wood,  Governor  of  the  Philippines, 
in  answer  to  an  official  communication 
from  the  War  Department  at  Washing¬ 
ton,  which  was  in  part  as  follows: 

“The  Sales  Tax  has  worked  out  very 
well  in  the  Philippines  and  I  believe  it 
to  be  a  most  desirable  form  of  taxation. 
The  only  difficulties  which  have  arisen 
in  this  connection  are  due  to  the  fact 
that  small  business  men  are  not  obliged 
to  keep  books  here.  I  think,  however, 
that  this  difficulty  can  easily  be  obvi¬ 
ated. 

“I  believe  that  this  system  of  taxa¬ 
tion  could  be  most  successfully  applied 
to  Cuba.” 

At  the  meeting,  after  due  delibera¬ 
tion,  the  Chamber  of  Commerce  of  Ha¬ 
vana  decided  to  accept  the  Sales  Tax, 
but  only  as  a  substitute  for  the  stamp 


tax  and  the  tax  on  profits,  and  not  as 
an  additional  burden  to  be  borne  by 
the  business  men. 

The  smaller  nations  are  beginning  to 
avail  themselves  of  this  panacea  of  all 
tax  burdens — the  Sales  Tax.  Czecho¬ 
slovakia,  adopting  it  from  the  begin¬ 
ning,  was  the  only  Central  European 
nation  that  balanced  its  budget,  and 
its  credit  has  become  so  good  that  it 
recently  negotiated  a  large  loan  in 
America  and  Great  Britain. 

A  Feather-Weight  Tax 

The  money  raised  by  a  Sales  Tax 
comes  from  somewhere  and  from  some¬ 
body.  It  does  not  manufacture  funds 
out  of  the  air.  If  somebody  has  to  pay 
it,  it  is  a  burden  to  be  borne. 

The  Sales  Tax  is  a  burden,  but  it  is 
such  a  light  burden  at  each  point  where 
it  finally  falls  for  ultimate  payment, 
that  it  is  not  felt;  it  is  not  perceptible. 
The  payer  does  not  know  he  is  paying 
it;  that  is,  he  does  not,  because  of  any 
exertion  he  has  to  make  or  hardship  he 
has  to  bear. 

If  you  ask  one  man  to  lift  a  piano 
he  will  not  be  able  to  do  it.  If  four 
men  undertake  to  do  it  they  succeed, 
but  it  is  something  of  a  strain.  If, 
however,  a  contrivance  is  rigged  up  so 
that  100  men  can  each  help  equally,  the 
burden  becomes  a  feather. 

That  is  what  happens  with  the  Sales 
Tax.  The  great  burden  of  raising  one, 
two,  or  three  billion  dollars,  is  spread 
around  so  widely,  so  many  hands — 
scores  of  millions  of  them — do  their 
part  in  lifting,  that  the  tax  becomes  a 
feather-weight. — Bache  Review,  May  20. 

Chapter  XIII. 

Q.  If  the  price  level  of  commodities 
began  to  rapidly  advance  in  1915,  ap 
proximately  two  years  before  tlie  Ex¬ 
cess  Profits  Tax  law  was  enacted,  and 
continued  to  advance  by  leaps  and 
bounds  after  the  1919  excess  profits 
rates  were  greatly  reduced  below  those 
of  1918,  how  can  it  be  proven  by  any¬ 
one  that  the  pyramiding  of  commodity 
prices  was  due  to  the  excess  profits 
tax? 

A.  We  must  repeat  that  the  world¬ 
wide  laws  of  supply  and  demand  are 
the  chief  causes  of  the  wide  fluctua¬ 
tions  in  commodity  prices,  and  labor 
costs,  and  that  the  present  stagnation 
in  business  will  probably  continue  so 
long  as  the  present  complex  federal 
tax  laws  compel  an  additional  tax 
spread  of  at  least  20  per  cent  between 
the  basic  prices  of  the  farmers1’  prod¬ 
ucts  and  the  retail  prices  of  the  mer¬ 
chant  to  the  consumer. 

The  additional  tax  spread  due  to 
the  uncertain  costs  of  taxation  are 
today  really  more  than  20  per  cent  as 
proven  by  an  examination  of  the 
books  of  all  concerned  for  1919,  1920, 
1921,  of  the  farmers  on  the  one  hand, 
and  on  the  other  of  any  solvent  retail 


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9 


business  in  the  country  that  turns  its 
average  well  assorted  stock  on  hand 
less  than  four  times  a  year. 

Every  stage  of  manufacture  is  com¬ 
pelled  to  add  4  per  cent  to  6  per  cent 
to  its  overhead  costs  to  be  safe  from 
losses  due  to  the  uncertainties  of  fed¬ 
eral  taxation,  otherwise  they  must 
shut  down  and  discharge  their  help 
and  refuse  orders.  Five  or  six  sepa¬ 
rate  processes  will  make  the  addi¬ 
tional  tax  spread  more  than  25  percent 
between  the  farmer  and  the  retailer. 

If  this  taxation  cost  is1  reduced  to  a 
1  per  cent  sales  tax  on  each  process 
then  the  present  pyramided  uncertain¬ 
ties  will  be  changed  from  a  4  per  cent 
up  to  6  per  cent  charge  at  each  step 
to  a  positive  1  per  cent  tax  cost  which 
will  be  diffused  by  competition  and 
rendered  impossible  of  reaching  a 
total  spread  of  more  than  3  per  cent 
tax  cost  between  producer  and  con¬ 
sumer. 

This  is  the  crux  of  the  situation, 
and  theorists,  party  politicians  or 
demagogues  can  gain  no  advantage  by 
ignoring  these  existing  facts  and  eco¬ 
nomic  principles  any  longer.  As  a 
leading  economist  has  well  stated  Au¬ 
gust  12:  “The  maladjustment  be¬ 
tween  the  prices  of  farm  products  and 
raw  materials  and  the  prices  of  manu¬ 
factured  goods  is  the  most  significant 
instance  of  price  maladjustment.” 

This  obstacle  of  “price  maladjust¬ 
ment”  and  its  causes  should  be  again 
analyzed  and  presented  to  Congress 
by  the  federal  Department  of  Justice. 
It  is  the  function  of  a  democratic  gov¬ 
ernment  to  remove  obstacles  to  trad© 
and  commerce,  not  to  add  to  them. 

— From  The  Minneapolis  Tribune. 


August  31,  1921. 

Chapter  XIV. 

Q.  Is  it  not  a  fact  that  the  sales 
tax  was  used  in  Egypt,  Babylonia  and 
Rome;  that  it  prevailed  in  France 
prior  to  the  Revolution;  that  it  has 
prevailed  in  many  instances  when  a 
privileged  aristocracy  was  in  position 
to  dictate  the  method  of  securing  reve¬ 
nues  of  the  state,  thus  deriving  the 
greater  part  of  the  revenues  from  the 
sales'  of  necessities  to  the  common 
man;  and  that  the  democratic  move¬ 


ment  was  instigated  and  is  maintained 
for  the  prevention  of  such  methods  of 
oppression? 

A.  Both  the  income  tax  and  the 
sales  tax  have  been  safely  used  from 
the  time  of  Moses  with  tithes  on  in¬ 
come  of  10  per  cent  and  on  general 
sales  of  1  per  cent.  Both  have  suc¬ 
ceeded  at  reasonable  rates,  and  other 
wise  they  have  failed. 

Professor  Seligman  gave  a  good  his¬ 
torical  summary  of  the  varying  rates 
of  sales  taxes  before  the  Senate  com¬ 
mittee  May  27th,  1921,  Part  16  Com¬ 
mittee  Print,  but  his  conclusions  did 
not  emphasize  the  certain  failure  of  a 
high  rate  of  every  form  of  taxation, 
which  usually  led  to  revolution,  what¬ 
ever  the  tax.  He  states  of  the  Sales 
Tax:  “The  only  country  where  it  was 
tried  in  all  its  fullness  was  Spain.  It 
started  there  in  the  early  Middle  Ages 
in  the  Communes,  and  when  Spain  be¬ 
came  a  nation  it  was  introduced  as  a 
national  tax  in  1342.  It  included 
virtually  all  articles,  first  as  a  1  per 
cent  tax,  later  as  a  5  per  cent  tax 
on  all  sales.  It  was  known  as  the 
Alcavala.” 

Apparenty  the  Alcavala  was  so  suc¬ 
cessful  at  the  original  1  per  cent  rate, 
that  the  absolute  monarchs  of  that 
day  jumped  the  rate  five  fold,  and 
even  then  the  people  paid  the  tax.  In 
later  years  it  was'  again  increased  to 
10  per  cent,  at  which  rate  the  people 
rebelled. 

Q.  Is  it  not  a  fact  that  the  most 
notable  instances  of  a  general  sales 
tax  on  a  large  scale  are  those  of 
France  and  Canada;  that  neither  of 
these  countries  impose  a  flat  rate  on 
sales;  that,  according  to  official  re¬ 
ports,  the  French  tax  is  yielding  less 
than  45  per  cent  of  the  estimated  reve¬ 
nue;  that  the  Canadian  tax  exempts  a 
long  list  of  commodities,  among  which 
are  all  food  products,  building  mate¬ 
rials  for  construction  purposes,  fuel 
and  other  necessities,  and  provided 
that  the  governor  and  council  might 
add  to  the  list  of  exempt  articles  so 
far  as  the  public  welfare  made  it  ex¬ 
pedient  and  necessary? 

A.  France  and  Canada  would  suc¬ 
ceed  much  better  if  the  sales  tax  were 
confined  to  1  per  cent  rate  or  less,  with 
no  exemptions  whatever  except  for  $6,- 
900  annual  sales  for  the  small  farmer 
and  dealer.  This  exemption  would 
otherwise  treat  all  business  competi- 


10 


tors  alike,  while  all  the  social  inequali¬ 
ties  of  acquired  personal  wealth  could 
be  levelled  up  by  the  graduated  per¬ 
sonal  income  tax  and  the  inheritance 
tax,  tariff  and  tobacco. 

— From  The  Minneapolis  Tribune. 


September  2,  1921. 

Chapter  XV. 

JQ.  Is  it  not  a  fact  that  a  tax  of 
$1,000,000,000  can  not  be  treated  as  a 
trifling  sum  and  that  the  burden 
thereof  is  bound  to  be  felt  by  some¬ 
one? 

A.  It  varies  with  the  scope  of  the 
general  sales  tax.  Certainly  goods, 
wares  and  merchandise  should  be  sub¬ 
ject.  Mr.  Charles  E,  Lord  stops  there, 
saying  that  will  yield  sufficient  reve¬ 
nue,  $1,200,000,000  at  1  per  cent,  $600,- 
000,000  at  one-half  of  1  per  cent. 
These  are  not  trifling  sums. 

“What  the  people  undoubtedly  want 
is  lower  taxes.  But  realizing  that 
taxes  must  remain  high  for  a  consider¬ 
able  period,  they  demand  and  will  in¬ 
sist  upon  three  things:  (1)  That  the 
burden  of  taxation  be  equally  spread; 
(2)  that  taxes  be  capable  of  being 
forecast  with  reasonable  certainty; 
and  (3)  that  the  labor  of  computing 
and  reporting  tax  liability  be  reduced 
to  a  minimum.  As1  between  a  multi¬ 
tude  ui  Heterogeneous  specific  sales 
taxes  and  a  uniform  turnover  tax,  who 
can  doubt  the  eventual  decision.” 

tQ.  Is  it  not  a  fact  that  the  Philip¬ 
pine  sales  tax  raised  only  about  $7,000,- 
000  during  the  past  year  from  a  popu¬ 
lation  of  10,000,000  people  or  approxi¬ 
mately  70  cents1  per  capita;  and  that 
if  a  sales  tax  is  imposed  on  the  con¬ 
sumers  of  the  United  States  sufficient 
to  raise  $1,000, 000,000  that  it  will 
mean  a  per  capita  tax  of  $10  or  for 
the  average  family  of  five  persons, 
$50? 

$A.  A  sales  tax  of  $1,000,000,000 
would  be  partly  diffused  before  reach¬ 
ing  the  retail  consumer.  The  hypo¬ 
thesis  of  an  average  tax  for  an  aver¬ 
age  family  of  five  would  imply  identi¬ 
cal  conditions  for  all  and  identical 
abilities  and  desires.  This  is  not  pos¬ 


sible  of  realization.  The  snow  that 
falls  on  a  level  today  is  not  less  surely 
blown  into  drifts  on  the  morrow. 

The  government,  however,  can  and 
must  give  equal  opportunity  to  all  fami¬ 
lies  and  protection  to  every  individual 
against  class  prejudice  and  the 
tyranny  of  monopolists,  demagogues 
or  bolshevists. 

— From  The  Minneapolis  Tribune. 


September  5,  1921. 

Chapter  XVI. 

JQ.  It  has  been  asserted  that  a 
sales  tax  would  be  a  “certain  tax.”  It 
has  also  been  asserted  that  a  sales 
tax  would  be  a  “simple  tax.”  Who  is 
to  tell  us  and  how  can  it  be  shown, 
without  years  of  experimentation  in  a 
new  form  of  taxation,  that  the  tax  is 
either  certain  or  simple? 

A.  It  has  been  shown  in  previous 
chapters  that  there  is  nothing  new  or 
uncertain  in  either  a  half  of  1  per  cent 
or  1  per  cent  sales  tax  or  a  5  or  10 
per  cent  personal  income  tax,  pro¬ 
vided  exemptions  are  at  the  minimum. 
Any  sales  tax  that  is  not  widespread 
and  equal,  or  that  is  above  2  or  3  per 
cent  seems  certain  to  fail,  except  the 
tax  on  “pleasant  vices”  like  liquors 
and  tobacco. 

Graduated  personal  income  taxes 
above  10  or  15  per  cent  have  been 
likewise  sure  to  fail  except  during 
actual  war.  To  maintain  low  rates 
and  attain  social  justice,  both  the  per¬ 
sonal  income  and  sales  taxes  are 
necessary. 

Q.  Is  it  not  a  fact  that  the  basic 
criterion  on  which  the  tax  burden 
should  be  distributed  is  ability  to  pay; 
that  nothing  so  well  measures  tax  pay¬ 
ing  ability  as  net  income  and  that  it 
is  generally  recognized  that  tax  pay¬ 
ing  ability  increases  in  a  ratio  faster 
than  income? 

A.  The  chief  subjects  of  federal 
taxation  are  property  (“Things  are 
worth  what  they  will  sell  for,”  said 
Lord  Coke),  cash  income,  personal 
earning  capacity,  tariff  for  revenue, 
tobacco  and  liquors. 

JNote  for  Fifth  Edition,  May  1st, 
1922: 

Herbert  L.  Casson,  correspondent 
for  “Barron’s”  Financial  Weekly, 


{Indicates  addition  and  revision  for  Fifth  Edition,  May  1,  1922. 


11 


writes  from  London:  “The  whole 
drink  trade  has  been  ‘savagely  over¬ 
taxed’ — to  use  one  of  its  own  phrases. 
Drink-sellers  are  primarily  tax-collec¬ 
tors. 

“The  beer  tax  is  $24  a  barrel.  It 
is  13  times  what  it  was  in  1914. 

“The  total  amount  paid  in  rates 
and  taxes  last  year,  by  the  drink 
trade,  was  fully  $1,300, 000,000.  This 
is  more  than  one-fifth  of  the  total 
revenue  of  the  British  government. 

“About  20  per  cent  of  the  drink  rev¬ 
enue  is  shared,  half  and  half,  by  labor 
and  capital.  About  15  per  cent  goes 
for  materials  and  expenses;  and  65 
per  cent  goes  to  the  government. 

“It  is  greatly  amusing  Britishers  to 
notice  that  there  were  nearly  twice 
as  many  arrests  for  drunkenness  in 
Chicago  as  in  London.  The  ratio  of 
drunkenness  appears  to  be  18  per 
1,000  in  Chicago  and  only  four  per 
1,000  in  London.” 

The  lowest  price  for  bottled  beer 
in  London  is  12  cents  a  half-pint.  A 
glass  of  beer  still  is  costing  as  much 
as  six  daily  papers  or  an  eight-mile 
ride  on  a  bus. 

There  seems  to  be  no  hope  that  the 
present  taxes  will  be  reduced.  The 
government  needs  the  money,  and 
nothing  will  induce  it  to  lower  the 
rate  of  taxation  except  a  falling  off 
in  the  returns. 

So,  here  is  a  vast  trade  with  a  capi¬ 
tal  of  more  than  $2,000,000,000  entire¬ 
ly  overwhelmed  with  taxes.  It  no 
longer  belongs  to  itself.  It  is  used 
as  a  tax-collecting  device  with  amaz¬ 
ing  success. 

Q.  As  a  result  of  the  fundamental 
principle  recognized  above,  is  it  not  a 
fact  that  the  progressive  income  tax 
has  come  to  form  the  backbone  of  the 
revenue  system  of  most  modern  demo¬ 
cratic  states? 

A.  The  personal  income  tax  comes 
first  in  importance,  then  the  1  per  cent 
sales  tax  on  business,  from  which 
about  one-third  of  the  total  revenue 
should  be  obtained.  Then  comes  the 
inheritance  tax  and  the  import  tax  on 
business  for  revenue  chiefly. 

The  real  issue  is  between  a  continu¬ 
ation  and  extension  of  the  present  sys¬ 
tem  or  lack  of  system  of  specific  sales 
taxes  at  high  rates  on  the  one  hand, 
and  a  turnover  sales  tax  at  the  rate 
of  1  per  cent  or  less  on  goods,  wares 


and  merchandise  on  the  other  hand. 
It  is  a  case  of  sales  tax  versus  sales 
taxes. 

The  administration  of  the  present 
specific  sales  taxes  is  extremely  diffi¬ 
cult.  Their  bases  are  so  varied  that 
we  doubt  if  even  the  most  experienced 
revenue  agent  could  offhand  state  the 
rate,  the  incidence  and  the  scope  of 
most  of  such  taxes.  About  twenty 
separate  sets  of  regulations,  each  a 
sizeable  pamphlet,  have  been  issued 
by  the  Internal  Revenue  bureau,  and 
it  now  in  addition  has  a  special  bulle¬ 
tin  service,  to  instruct  its  agents  and 
the  public  in  the  administration  of  the 
specific  sales  taxes. 

On  the  other  hand,  the  turnover 
sales  tax,  being  imposed  at  a  single 
low  rate  on  every  sale  of  every  article 
by  every  person,  will  in  comparison 
be  simplicity  itself  to  administer. 
Every  store  would  pay  merely  1  per 
cent  of  its  gross  sales  for  the  month, 
and  the  yearly  return  would  De  little 
more  than  a  summary  of  the  periodical 
returns.  In  fact  it  would  be  possible  to 
combine  the  annual  turnover  sales  tax 
return  with  the  income  tax  return,  for 
the  latter  starts  out  with  the  same 
figure  which  would  be  the  sole  basis 
of  the  turnover  sales  tax,  that  is  to 
say,  the  gross  sales. 

The  uniform  rate  of  1  per  cent  on 
all  commodities  approaches  as  nearly 
as  possible  to  absolute  equality.  What 
could  be  fairer  than  to  tax  business 
(beyond  $6,000  a  year  exemption),  at 
the  same  low  rate  in  proportion  to  the 
gross  business  done,  and  every  per¬ 
sonal  income  (beyond  a  reasonable  ex¬ 
emption)  by  a  tax  graduated  accord¬ 
ing  to  ability  to  pay? 

— From  The  Minneapolis  Tribune. 

September  7,  1921. 

Chapter  XVII. 

Q.  How  does  the  spendings  tax  dif¬ 
fer  from  the  sales  tax? 

A.  This  plan  would  tax  sales  from 
the  returns  made  by  the  purchaser 
and  at  much  higher  graduated  rates. 
It  is  advocated  by  Congressman  Mills. 
The  administrative  form  of  the  turn¬ 
over  tax  is  far  superior.  For  example: 
The  sales'  tax  on  millions  of  separate 
purchases  at  Marshall  Field  &  Co.’s 
store  could  be  collected  better  in  one 
monthly  total  return  by  that  concern 
than  by  millions  of  separate  returns 
by  the  individual  purchasers. 


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12 


Q.  Why  do  business  men  insure 
themselves  against  the  uncertainties 
of  federal  tax  costs  by  4  per  cent  to  6 
per  cent  increase  of  overhead  costs 
until  Congress  has  legislated  instead 
the  certainty  of  a  1  per  cent  sales  tax? 

A.  So  as  not  to  impair  their  capital 
by  taking  risks  without  profits.  The 
experienced  merchant  and  manufac¬ 
turer  insures  himself  in  every  transac¬ 
tion,  and  likes  small  and  sure  gains 
from  large  sales.  Indeed,  Congress 
itself,  since  the  armistice,  has  con¬ 
tinued  to  impose  and  collect  billions 
of  dollars  in  taxes  in  preparation  for 
and  insurance  against  future  wars,  an 
insurance  which  the  average  business 
man  looks  upon  as  next  to  absurd  dur¬ 
ing  the  present  generation. 

Q.  What  do  business  men  fear? 

A.  Politicians  or  others  seeking  to 
array  one  class  against  another  class, 
and  especially  the  farmer’s  business 
against  the  manufacturing  business 
and  the  distributing  business.  Labor 
leaders  continuing  to  resist  economic 
law,  and  the  indefinite  continuance  of 
rhe  “buyer’s  strike,”  so-called,  until 
business  can  be  done  on  correct  busi¬ 
ness  principles  with  all  classes  alike. 

At  the  London  conference  of  the  In- 
;ernational  Chamber  of  Commerce  the 
lord  chancellor,  Viscount  Birkenhead, 
spoke  of  the  special  duty  imposed  on 
business  men  at  this  time,  “because 
quite  obviously  they  can  give  guidance 
upon  these  points  which  no  other  class 
in  the  whole  world  can  give.” 

“Experience  and  common  sense  have 
habituated  us  to  asking  for  and  ob¬ 
taining  advice  from  specialists.  There 
never  was  any  pursuit  known,”  said 
he,  “which  was  more  specialized  in  its 
character,  more  specialized  in  the  la 
borious  attainment  of  the  experience 
which  leads  to  efficiency  than  the  oc¬ 
cupation  of  business  men.  The  world 
problems  of  today  are  those  to  which 
business  men  alone  can  and  must  give 
guidance.” 

The  Chamber  of  Commerce  of  the 
United  States  of  America,  in  which 
more  than  1,400  commercial  and  trade 
organizations  hold  membership,  as  a 
result  of  two  referendum  votes  on  the 
subject,  has  presented  to  Congress, 
now  considering  tax  legislation,  a  pro¬ 
gram  which  it  believes  if  adopted  will 
obtain  the  funds  needed  with  the  least 
disturbance  to  trade  and  industry. 
These  proposals  call  for  repeal  of  the 
present  excess  profits  and  war  excise 


taxes  and  substitution  in  so  far  as 
necessary  of  a  general  turnover  tax  cn 
all  business  transactions. 

The  1  per  cent  sales  tax,  to  every¬ 
body,  is  practically  the  smallest  in¬ 
direct  tax  any  voter  can  pay  to  become 
a  “partaker  in  the  government”  and 
be  qualified  to  vote  intelligently  on 
matters  of  taxation.  While  for  all  the 
well-to-do  and  rich  people  a  reasonable 
graduated  income  tax,  in  connection 
with  the  sales  or  turnover  tax,  will 
act  both  as  a  levelling  tax  between 
concerns  that  make  little  or  no  profits 
and  concerns  which  make  large  profits 
and  a  tax  based  upon  “ability  to  pay.” 
This  point  cannot  be  too  strongly  em¬ 
phasized  and  driven  home  if  we  hope 
to  educate  the  masses  and  silence  the 
demagogue. 

Q.  What  is  the  pure,  business  logi¬ 
cal  basis  for  the  Sales  Tax? 

To  show  the  simplicity,  equity,  mod¬ 
eration  and  fundamental  soundness  of 
these  practical  working  measures  of 
business  taxation.,  we  quote  from  “Fed¬ 
eral  Income  Taxation,”  by  Prof.  T.  S. 
A.dams,  on  page  551,  August  number 
of  the  “Quarterly  Journal  of  Eco¬ 
nomics:”  Business  taxes  are  imposed 
because  it  costs  money  to  maintain 'a 
market  and  those  costs  should  in 
some  way  be  distributed  over  all  the 
beneficiaries'  of  that  market.  Looking 
at  the  same  question  from  another 
viewpoint,  a  market  is  a  valuable  as¬ 
set  to  the  social  group  which  main¬ 
tains  it  and  the  community  ought  to 
charge  for  the  use  of  community  as¬ 
sets.  As  a  matter  of  pure  business 
logic  the  government  might  well  meas¬ 
ure  the  tax  by  gross  business,  saying 
in  effect  to  the  business1  ^fean:  “You 
have  come  amongst  usjSci  have  ex¬ 
ploited  our  market;  ytp  have  traf¬ 
ficked  as  much  as  y©ur  competitor; 
whether  you  have  used"*  your;  Opportu¬ 
nity  as  well  as  he  i4  not  gur^concern. 
It  is  the  gross  voUiihe  of  your  trade 
which  both  reprs&pnts'  <Vpur  opportu¬ 
nity  and  causes^cmr  expense.  Upon 
that  you  mustjJ&y.” 

History  has^&ught  all  governments 
from  the  timJStif  the* tithes  (one-tenth) 
of  Moses  tjglJhe  present  day  that  net 
incomes  inumes  of  peace  cannot  be 
safely  taxed  more  than  one-tenth,  nor 
gross  sales  more  than  one-hundredth 
of  their  respective  volume,  with  ex¬ 
ception  of  pleasant  vices  like  liquors 
and  tobacco. 

Q.  Is  not  Senator  Smoot’s  plan  of  a 
manufacturers’  sales  tax  of  three  per 


13 


cent  better  and  simpler  than  a  uni¬ 
versal  one  per  cent  tax  on  all  turn¬ 
overs? 

$A.  This  question  almost  answers  i-t- 
self.  In  previous  chapter  it  was  ex¬ 
plained  why  France  and  Canada  would 
succeed  much  better  confined  to  a  one 
per  cent  tax  or  less,  with  no  exemp¬ 
tions  except  $6, COO  annual  sales.  One 
per  cent  tax  adds  so  little  to  each 
step  of  manufacture  that  immense 
revenues  can  be  almost  painlessly  se¬ 
cured,  while  the  business  man  does 
about  all  the  work  of  administration. 

History  has  demonstrated  that  a 
three  per  cent  rate  on  sales  is  ap¬ 
proaching  the  limit,  and  should  only 
be  imposed  in  time  of  war.  Indeed,  it 
might  be  well  for  the  United  States  to 
start  immediately  at  less  than  one  per 
cent,  with  a  half  or  three-quarters  of 
one  per  cent  tax  on  all  turnovers,  and 
make  a  three  years’  trial  which  would 
be  an  object  lesson  to  the  whole  civil¬ 
ized  world. 

Many  business  men  consider  that 
there  is  little  but  prospective  loss  in 
the  1921  and  1922  business  anyway, 
consequently  the  excess  and  sur-taxes 
on  business  profits  do  not  affect  them 
this  year. 

It  is  now  largely  a  question  of  sav¬ 
ing  any  further  loss  of  capital  invest¬ 
ment  and  of  retiring  from  business 
until  politics  can  recognize  economics 
and  enterprise. 

This  concludes  the  series  of  ques¬ 
tions  and  answers  on  the  sales  or 
turnover  tax.  If  there  are  new  ques¬ 
tions  arising ,  Mr.  Burton  will  gladly 
answer  them  and  send  pamphlet 
containing  the  entire  series  of  articles, 
Chapters  I  to  XVIJ  Such  inquiries 
should  be  addressed  to  him  in  care  of 
this  paper. 

— From  the  Minneapolis  Tribune. 


THE  PROMISE  OF  TAXATION  REFORM 

The  new  administration  came  into  power 
with  the  implied  promise  of  reform  in  Fed¬ 
eral  taxation.  Since  its  accession  the  feel¬ 
ing  has  been  made  manifest,  in  a  manner 
overwhelmingly  positive,  that  its  very  first 
duty  to  the  country  was  to  effect  an  im¬ 
mediate  change  in  the  income  tax,  to  make 
it  less  complex  and  burdensome,  and  to  af¬ 
ford  the  taxpayer  prompt  relief.  The 
country  is  anxiously  awaiting  positive  and 
direct  action,  and  is  not  content  to  per¬ 


petuate  the  old  system  for  a  single  day 
longer  than  may  be  necessary  to  effect  a 
radical  change. 

It  is  not  clear  what  the  objection  of  the 
politicians  and  bureaucrats  to  the  Sales 
Tax  is  actually  based  upon. 

A  CRISIS  IN  TAXATION. 

From  an  Address  by  Judge  L.  R.  Wilfley 
in  May,  1921. 

“The  nation  is  confronted  with  a  crisis 
in  the  field  of  taxation  just  as  it  was  in 
1896  in  the  field  of  currency  and  as  it  was 
in  1912  in  the  field  of  banking.  Our  con¬ 
tention  is  that  a  fundamental  and  far- 
reaching  reform  in  our  system  of  taxation 
is  just  as  vital  to  the  future  welfare  of  the 
nation  at  this  time  as  was  the  adoption  of 
the  gold  standard  in  1896,  and  the  adoption 
of  the  Federal  Reserve  Act  in  1913.” 

NATIONAL  REAL  ESTATE  JOURNAL. 

Excerpts  from  Paper  in  National  Real 
Estate  Journal,  April  11,  1921,  on  FEDER¬ 
AL  TAX  PROGRAM  by  CHAS.  T.  MOF¬ 
FETT,  Chairman  of  the  Tax  Committee  of 
the  National  Association  of  Real  Estate 
Boards,  also  Chairman  of  the  Tax  Commit¬ 
tee  of  the  National  Association  of  Building 
Owners  and  Managers. 

We  consider  the  gross  turnover  or  sales 
tax  highly  practicable.  Its  simplicity  is 
apparent.  The  tax  attaches  to  the  one 
thing  that  every  business  man  for  his  own 
satisfaction  finds  out  voluntarily;  he 
knows  his  gross  turnover,  either  daily, 
weekly,  monthly,  or  annually  in  any  event, 
it  being  the  interesting  feature  of  any  busi¬ 
ness  and  it  is  on  this  point  of  information, 
free  from  any  complications  that  it  is  pro¬ 
posed  to  tax  one  per  cent. 

This  tax  may  be  in  one  way  looked  at  as 
a  layer  of  the  expense  of  doing  business, 
one  cent  out  of  the  hundred  of  the  selling 
price  being  the  share  and  proportion  of  the 
Federal  Government.  For  this  share  the 
Federal  Government  guarantees  the  value 
of  the  commodities  dealt  in  by  the  main¬ 
tenance  of  internal  peace.  It  is  not  a  loss ; 
it  is  a  just  expense.  A  good  government 
gives  solidity  to  commodity  values.  Goods 
lose  part  of  their  value  under  poor  gov¬ 
ernment,  and  have  no  value  where  there 
is  no  proper  government. 

The  incidence  of  the  tax  is  the  price  set 
upon  the  thing  wanted  by  the  buyer  in  the 
hands  of  the  seller  or  vice  versa.  The  sale 
is  necessarily  the  meeting  of  the  minds  of 
the  two  parties  as  to  the  reasonable  value 
at  the  moment  that  it  is  finally  ascertain¬ 
able  and  true. 


^Indicates  addition  and  revision  for  Fifth  Edition,  May  1,  1922. 


14 


FEDERAL  TAXES  AND  THE  FARMER 

By  Charles  E.  Lord. 


'  March  21,  1921. 

In  arguing  recently  before  a  tax  com¬ 
mittee,  a  gentleman  claiming  to  represent 
the  farmers  spoke  with  more  oratory  than 
sound  judgment  in  favor  of  the  present 
method  of  taxation  because  “it  made  the 
rich  man  squirm,”  a  back-handed  argu¬ 
ment  that  it  did  not  matter  if  a  farmer  was 
hurt  if  only  some  other  man  was  ap¬ 
parently  hurt  more.  If  you  tread  on  my 
toes,  it  is  all  right,  providing  you  break 
some  other  man’s  leg. 

Now,  as  to  the  first,  if  the  rich  man  is 
an  idle  rich  man,  he  squirms  into  tax-ex¬ 
empt  securities  and  ceases  his  squirming; 
and,  as  to  the  second,  it  is  not  necessary 
to  break  any  man’s  leg  in  order  to  carry 
our  load  of  after-war  taxes,  in  fact,  if  you 
break  legs,  then  those  so  injured  are  less 
able  to  do  their  part  in  the  whole  general 
scheme  of  things  which  makes  for  national 
prosperity. 

The  following  day  another  man,  this 
time  one  identified  with  financial  interests, 
argued  against  a  sales  tax  that  it  “favored 
the  farmers  above  all  others  and  created 
in  the  farmers  of  the  country  a  privileged 
class.” 

These  statements  are  contradictory. 
Either  one  man  or  the  other  was  reason¬ 
ing  falsely.  A  commodity  sales  tax 
could  not  injure  the  farmer  and  at  the 
same  time  give  him  an  advantage  over 
others. 

All  recognize  that  such  a  tax  will,  to  a 
moderate  extent,  favor  the  farmer  above 
any  other  citizen  in  that  a  farmer  is  more 
self-contained.  In  many  instances,  he  pro¬ 
duces  a  large  part  of  what  he  and  his  fam¬ 
ily  consume,  which,  as  it  does  not  pass 
through  the  channel  of  trade,  would  bear 
no  sales  tax.  This,  however,  is  only  an 
extension  of  a  natural  advantage  which  he 
has  always  enjoyed.  On  such  food  as  he 
growls  and  consumes,  on  the  fodder  for  his 
stock  and,  to  an  extent,  on  fuel,  he  now 
and  always  has  been  free  from  the  profits 
of  dealers  and  storekeepers.  That  is  one 
of  the  compensations  offsetting  some  of 
the  hardship  of  a  farmer’s  work — a  com¬ 
pensation  to  which  he  is  entitled  because 
of  his  valuable  function  in  feeding  the 
world — and  the  slight  additional  advantage 
accruing  to  him  under  a  sales  tax  should 
not  be  objected  to. 

It  would  seem,  however,  as  though  he 


should  become  an  earnest  worker  for  such 
a  tax  when  the  subject  is  once  laid  before 
him  in  definite  shape.  That,  apparently 
is  one  of  the  things  which  has  not  yet  been 
done  and  which  he  is  entitled  to  have  done 
so  that  he  may  understandingly  play  his 
part  for  or  against  a  proposal  which  is  now 
the  subject  of  so  much  discussion. 

Our  farmers  from  their  experience  with 
present  profit  taxes  have  learned  that  such 
taxes  have  increased  the  cost  of  everything 
they  buy.  They  are  now  learning  that  they 
are  also  depressing  the  price  of  everything 
they  sell.  The  cost  of  what  they  buy  is  in¬ 
creased  because  the  natural  law  governing 
the  operation  of  such  taxes  is  that  they  be 
added  to  and  passed  along  to  the  ultimate 
consumer. 

This  is  because  taxes  now  rest  on  profits 
of  active  business.  If  profits  are  small, 
prices  are  low,  and  the  government  re¬ 
ceives  no  revenue.  If  profits  are  large, 
prices  are  high,  and  the  government  gets 
its  share.  It  can’t  work  any  other  way.  If 
the  government  receives  a  large  revenue 
under  such  taxation,  you  and  I  must  pay  it 
in  the  form  of  high  prices  for  what  we  pur¬ 
chase.  When  prices  get  so  high  that  we 
have  to  stop  buying,  then  comes  a  reaction 
such  as  we  are  experiencing. 

Present  taxes  depress  the  price  at  which 
the  farmer  sells  because  they  impair  his 
market.  That  phase  of  their  operation  is 
now  becoming  noticeable.  A  system  of 
taxation^  which  prevents  the  accumulation 
of  capital  or  savings  for  investment  in 
productive  enterprises  shuts  off  the  stream 
which  creates  prosperity  for  all,  and  leads 
to  industrial  stagnation  and  increasing  un¬ 
employment.  As  millions  become  out  of 
work,  the  farmer’s  market  suffers,  and  it 
is  his  best  market,  that  created  by  indus¬ 
trial  activity  in  our  own  country. 

The  present  method  of  taxation  is  an  im¬ 
ported  thing — a  theorist’s  dream  and  the 
people’s  nightmare.  It  is  espoused  by  a 
small  group  of  economists,  their  experience 
drawn  from  books  and  not  from  life,  who 
are  trying  to  persuade  themselves,  and  us 
that  it  is  possible  to  tax  a  small  section  of 
the  people  in  such  a  way  that  the  body 
of  the  people  will  not  feel  it.  The  result 
shows  that  it  cannot  be  done — less  now 
than  ever  before,  since  modern  conditions 
have  rendered  us  so  mutually  dependent 
and  necessary  to  each  other. 


15 


This  system  is  also  beloved  of  dem¬ 
agogues  because  it  lends  itself  to  disguised 
taxation.  Such  men  care  not  that  the  bur¬ 
den  grows  heaviest  in  proportion  as  it 
reaches  the  poorer  man  so  long  as  it  is  a 
disguised  burden.  Their  attitude  is  de¬ 
scribed  by  a  U.  S.  Senator  who  has  written 
of  our  tax  laws: 

"The  law  is  an  abomination  as  it  stands, 
and  is  a  conspicuous  illustration  of  the 
legislative  product  of  a  Congress  charged 
with  the  duty  of  raising  enormous  revenue, 
on  the  one  hand,  and  painfully  appre¬ 
hensive  of  an  aroused  public  displeasure 
which  will  find  expression  at  the  polls. 
We,  therefore,  so  camouflage  our  legisla¬ 
tion  as  to  make  it  appear  on  .the  face  of 
things  that  only  those  possessed  of  enor¬ 
mous  wealth  and  large  incomes  are  unduly 
burdened. 

"The  people,  long  subject  to  indirect 
taxation  through  our  tariff  laws,  seem  per¬ 
fectly  willing  to  accept  without  question 
any  scheme  of  taxation,  however  oppres¬ 
sive  to  them  in  ultimate  results,  which,  on 
the  face  of  things,  seems  to  be  otherwise.” 

We  can  safely  rely  on  all  past  human  ex¬ 
perience  to  teach  us  that  taxes  tend  in  the 
end  to  rest  against  consumption  and  be 
paid  by  the  consumer;  that  if  they  are  ap¬ 
plied  in  disguised  or  discriminatory  form 
they  tend  to  be  added  to  and  profited  upon 
at  the  expense  of  the  consumer,  while  if 
they  are  applied  in  an  open,  definite  and 
general  form  they  do  not  lend  themselves 
to  such  additions  and  rest  lightly. 

It  is  the  old  conflict  between  daylight 
and  darkness — the  daylight  which  bravely 
faces  a  measure  of  small  recognized  con¬ 
sumption  taxation,  and  the  darkness  which 
covers  up  a  gross  hidden  tax  on  consump¬ 
tion.  No  amount  of  oratory  or  self-delusion 
can  alter  facts. 

It  is  safe  to  assume  that  the  American 
people  are  tired  of  deception,  tired  of  crea¬ 
tors  of  class  consciousness — the  class 
hatreds  that  have  wrecked  former  de¬ 
mocracies  and  would  wreck  ours  were  we 
not  so  interwoven,  so  fluid,  so  free  from 
real  class  distinctions.  We  are  all  willing 
to  pull  together  in  old-fashioned  American 
double  harness  to  draw  our  load,  providing 
we  know  definitely  what  that  load  is  and 
that  it  is  fairly  and  openly  adjusted. 

Let  us  see  how  it  is  adjusted  now  in  so 
far  as  it  affects  the  farmer? 

An  example  has  already  been  given  of 
how  the  present  taxation  operates  to  in¬ 
crease  unduly  the  price  of  everything  the 
farmer  buys — farm  implements,  clothing, 
groceries  or  whatever  it  may  be  all  coming 
to  him  bearing  a  tax  load  plus  a  profit 
load.  The  thought  that  the  rich  man  is 
paying  the  tax  must  be  dismissed,  for  if  he 
is  a  very  rich  man,  living  off  investments, 


he  buys  tax-exempt  securities  and  escapes 
taxation;  and  if  only  a  moderately  rich 
man  in  active  business  he  either  figures  his 
taxes  into  his  prices  and  so  recovers  them 
from  the  consumer,  or,  if  unable  to  do  that, 
has  no  taxable  profit  and  the  government 
secures  little  revenue  from  him.  The  farm¬ 
er  today,  like  the  rest  of  us,  eventually 
pays  the  taxes  so  levied  in  what  he  buys. 

The  farmer  in  addition  is  under  the  same 
obligation  as  every  other  citizen  to  make 
an  income  tax  return  and  pay  an  income 
tax  and  possibly  surtaxes  if  his  income  is 
large  enough  to  be  subject  to  them.  And 
as  already  pointed  out,  he  now  suffers  in 
his  market  and  in  the  price  received  for 
his  products  because  taxes  which  tend  to 
lessen  industrial  activity  must  impair  the 
purchasing  power  of  his  customers. 

He  now  also  pays  sales  taxes — heavy, 
badly  applied  ones — on  more  than  fifty  ar¬ 
ticles,  many  of  which  are  necessary  to 
him,  such  as  automobiles,  musical  instru¬ 
ments,  sporting  goods,  firearms,  soda  wa¬ 
ter,  movie  tickets,  etc.,  to  mention  a  few, 
with  a  proposal  now  under  consideration  to 
increase  the  list  and  to  include  possibly 
such  articles  as  tea,  coffee,  sugar,  gasoline, 
etc.,  all  at  a  high  percentage  as  5%  or  10% 
or  more. 

So  we  have  income  taxation  that  lets  the 
rich  escape  and  fastens  on  income  earned 
by  work  or  risk  or  skill  and  is,  therefore, 
passed  on  to  the  consumer  in  higher 
prices;  have  sales  taxes  at  high  rates  on 
special  articles;  and  have  the  system  so 
applied  that  we  are  always  in  debt  for 
back  taxes,  are  short  of  active  capital  and 
are  experiencing  a  general  setback. 

Suppose,  however,  we  scrapped  much  of 
the  present  method  and  applied  common 
sense  and  practical  knowledge  to  the  draft¬ 
ing  of  a  new  revenue  law.  Let  us  have  in¬ 
come  taxation  in  a  simpler,  more  just  form 
which  will  cause  it  to  rest  where  it  is  in¬ 
tended  to  fall,  together  with  an  open,  small, 
low  rate  consumption  tax  applied  to  com¬ 
modity  sales,  and  see  how  the  farmer’s  load 
would  be  adjusted  under  such  taxation. 

Under  such  a  plan,  a  farmer  would  pay 
a  small  known,  fixed  sales  tax  in  the  price 
of  goods  purchased,  not  the  unknown,  hid¬ 
den  tax  and  profit  load  he  now  pays;  and 
would  pay  it  on  his  purchases  of  goods 
only,  not  on  his  rent,  his  doctor’s  bills,  his 
transportation,  the  food  he  raises  or  what 
he  produces.  He  would  not  pay  special, 
heavy  taxes  in  the  price  of  his  automobile, 
his  musical  instrument,  etc.,  as  at  present, 
lie  would  still  pay  an  income  tax,  if  his 
income  was  above  the  -exemption,  but  at  a 
low  rate  not  difficult  to  compute.  There 
his  federal  taxation  would  stop. 

If  he  farmed  in  a  small  way,  selling  a 
little  produce  or  milk  or  eggs,  he  would  not 
even  be  obliged  to  collect  a  tax  on  his 


16 


sales,  as  all  sales  up  to  a  certain,  amount 
a  year  would  be  exempt,  it  not  being 
worth  while  to  the  government  to  admin¬ 
ister  a  tax  against  the  sales  of  thousands 
of  small  traders. 

It  can  be  accomplished  with  a  few  words, 
will  require  no  difficult  definitions  and  be 
understandable.  Let  there  be  “levied  upon 
each  and  every  business  involving  the  sale 
of  any  commodities  or  merchandise  pro¬ 
duced,  manufactured  or  purchased  for  sale, 
a  tax  equal  to  1%  of  the  gross  sales  of 
such  business,  and  that  the  tax  be  col¬ 
lectible  monthly  from  the  vendor,  who 
shall  be  compelled  under  penalty  to  keep 
a  true  record  of  his  sales.” 

Such  a  measure  carrying  with  it  an  ex¬ 
emption  of  all  sales  up  to  a  certain  fixed 
amount  (as  $4,800.00  or  more  per  annum) 
freeing  entirely  such  occupations  as  street 
peddling  or  vending,  petty  traders,  small 
farmers  and  all  those  whose  annual  sales 
do  not  total  that  sum,  would  be  easy  and 
inexpensive  to  administer  and  collect. 

Such  a  sales  tax  should  be  applied  in 
connection  with: 

A  uniform  tax  at  moderate  rates  on  indi¬ 
vidual  incomes; 

A  uniform  tax  at  a  flat,  not  excessive, 
rate  on  the  net  income  of  corporations 
(Prof.  Seligman  says  5%  to  8%); 

Certain  excise  taxes  of  tried  revenue 
producing  results  (as  the  tobacco 
taxes) ; 

Customs’  duties  properly  adjusted. 

To  those  familiar  with  governmental  fig¬ 
ures,  such  a  program  of  taxation  promises 
sufficient  revenue  for  a  sound  economical 
administration  of  the  government,  includ¬ 
ing  interest  and  some  reduction  of  floating 
indebtedness,  and  would  replace  the  pres¬ 
ent  excess  profits  tax  on  corporations 
(which  is  now  loaded  into  prices)  the 
heavy  surtaxes  on  individual  incomes 
(which,  when  not  loaded  into  prices,  es¬ 
cape  through  buying  tax  exempt  secur¬ 
ities),  many  present  obnoxious  sales  taxes 
at  high  rates  on  special  articles  and  most 
of  the  additions  to  the  excise  taxes  since 
1917. 

The  key,  therefore,  to  the  abatement  of 
present  tax  evils  and  inequalities,  to  the 
removal  of  the  shackles  on  industry  and 
progress,  to  simplification  of  administra¬ 
tion  and  the  ending  of  interminable  borrow¬ 
ing,  seems  to  lie,  and  to  lie  only,  in  the  ap¬ 
plication  of  a  gross  sales  tax  of  1%  (or 
less)  on  commodities  all  along  the  line. 

Does  it  seem  good  to  so  practical  a  man 
as  the  farmer  to  have  millions  of  the 
money  collected  in  taxes  paid  out  again  to 
auditors  and  accountants  to  disentangle 
and  examine  needlessly  complicated  re¬ 
ports?  Does  it  seem  good  to  him  to  have 
his  government  revenue  based  on  fluctuat¬ 


ing  business  profits  which  shrink  out  of 
sight  when  not  loaded  into  prices?  Does  it 
seem  good  to  him  to  have  his  government 
always  borrowing  ahead,  spending  the  tax 
money  before  it  gets  it  or  before  it  even 
knows  what  it  will  amount  to?  Does* he 
approve  of  having  sales  taxes  (and  we  have 
them  now  on  over  fifty  articles)  applied  at 
high  rates  against  certain  things,  as  auto¬ 
mobiles,  musical  instruments  or  soda  wa¬ 
ter,  or,  as  proposed,  tea,  coffee,  etc.,  in 
stead  of  at  a  low  rate,  as  1%  on  sales  gen¬ 
erally? 

The  answer  is  not  hard  to  forecast,  and 
need  not  be  feared  by  timorous  legislators. 
This  country  is  what  it  has  been  made  by 
the  farmer,  the  laborer,  the  business  man 
and  the  server  and  worker  in  any  useful 
capacity.  The  farmer  today  is  in  touch 
with  the  world  and  the  times.  He  sees 
China,  a  country  rich  in  natural  resources 
with  plenty  of  farmers  and  plenty  of 
laborers,  in  economic  slavery,  often  large 
sections  starving  for  lack  of  administration 
and  transportation,  for  lack  of  the  mer¬ 
chant,  the  developer,  the  distributor,  and 
has  had  the  experience  in  his  own  affairs 
that  an  injury  to  one  industrial  group  re¬ 
acts  unfavorably  upon  all.  We  are  no 
longer  to  be  diverted  from  our  own  burden 
by  the  camouflage  of  “tax  the  other  fel¬ 
low,”  who  immediately  passes  the  tax  on 
to  the  next  man  and  so  on  round  the  circle 
until  we  each  get  it  in  aggravated  form 
or  else  the  clock  stops. 

It  has  been  stated  in  Congress  that  the 
tax  load  in  recent  prices  was  about  23%, 
i.  e„  the  pyramiding  of  the  tax  on  profits 
as  it  passes  through  different  hands  has 
meant  that  the  final  consumer  paid  23% 
more  on  the  average  for  articles  bought 
than  would  otherwise  have  been  the  case. 
A  low  rate  tax  on  gross  sales  will  also  grow 
as  it  passes  along,  and  in  considerating  it 
we  should  know  what  percentage  it  will 
finally  represent. 

Calculations  carefully  made  covering 
food,  clothing,  fuel  and  other  necessaries, 
show  that  it  rarely  reaches  as  much  as  3% 
altogether,  so  we  would  have  a  pretty  def 
inite  3%  in  place  of  (not  added  to)  the 
present  23%  load. 

The  word  “sales-tax”  is  being  used  by 
its  opponents  as  a  bug-a-boo  to  create  the 
impression  that  some  new  form  of  load  is 
to  be  put  on  the  people,  while  as  a  matter 
of  fact  a  1%  tax  on  sales  of  commodities 
will  decrease,  not  increase,  the  burden  the 
consumer  now  bears.  A  portion  of  our 
taxes  have  to  rest  against  consumption  in 
any  event,  and  every  revenue  estimate 
looks  to  obtaining  from  a  biilion  to  a  bil¬ 
lion  and  a  half  annually  directly  out  of 
consumption.  Present  sales  taxes  we  have 
galore.  How  deceptive  to  argue  that  a 
billion  raised  by  five  or  ten  per  cent,  taxes 


17 


on  sales  of  automobiles,  candy  cr  Thermos 
bottles  or,  as  proposed,  tea,  coffee  and  gas¬ 
oline  and  other  special  articles  will  not  hit 
all  of  us  just  as  hard  as  the  same  billion 
raised  by  a  one  per  cent,  tax  on  sales  of 
commodities  generally. 

A  similar  amount  has  to  come  out  of 
consumption  in  either  event.  If  it  is  at  a 
small  rate,  definite  and  uniform,  we  will 
know  what  it  is  and  the  government  will 
get  it  all.  If  it  is  disguised  and  at  a  high 
rate,  it  will  be  loaded  to  us  and  we  will 
pay  more,  of  which  the  government  will  get 
>nly  a  part. 

We  do  not  want  to  minimize  the  law  of 
upply  and  demand.  Our  farmers  are  now 
uffering  severe  losses  and  have  a  very 
dear  understanding  of  some  of  the  rea- 
ons  for  them.  Perhaps  they  have  not  as 
learly  recognized  how  much  our  present 
ystem  of  taxation  has  contributed  to  these 
osses.  The  purpose  of  this  paper  is  to 
tart  them  thinking  about  it.  We  are  dry 
goods  merchants  and  have  no  personal  ax 
to  grind.  We  are  not  directly  affected  by 
he  present  sales-taxes  on  certain  articles 
or  interested  in  fighting  the  battles  of  those 
who  are. 

What  we  are  interested  in  is  general 
prosperity,  which  helps  us  as  it  helps  every 
legitimate  enterprise.  That  is  why  we 
have  given  some  of  our  time  to  securing 
publicity  to  this  whole  matter.  We  believe 
that  the  nation  which  first  adjusts  its  after¬ 
war  tax  load  so  that  it  will  fit  in  with  its 
normal  activities,  instead  of  making  its 
normal  activities  fit  tax  interference,  will 
secure  the  greatest  amount  of  prosperity 
to  its  people,  regardless  of  classes. 

THE  SALES  TAX. 

April  11,  1922. 

Mr.  Hazen  J.  Burton  of  the  National  Tax 
Association,  and  himself  a  recognized 
authority  on  the  Sales  Tax,  indorses  the 
following  address  by  V.  L.  Highland,  a 
Clarksburg,  W.  Va.,  banker,  as  represent¬ 
ing  substantially  the  present  consensus  of 
leading  economic  and  business  experts  on 
that  subject.  The  address  is  to  be  pub¬ 
lished  in  four  installments  on  succeeding 
days,  in  the  Minneapolis  Tribune. 

INSTALLMENT  No.  1. 

Taxation  has  grown  to  be  truly  a  mon¬ 
ster  of  hideous  mien.  It  is  strangling 
Europe  to  death — aided  by  war  exhaustion 
and  inflation.  In  the  United  States,  taxa¬ 
tion  like  vice  in  Pope’s  couplet,  has  seem¬ 
ingly  been  embraced  where  once  it  was  ab¬ 
horred.  Pride  points  to  the  heaviest  taxes 
and  the  highest  rates  known  to  history. 
The  pride  is  born  of  ignorance  and  is  chief¬ 


ly  displayed  in  Congressional  circles, 
where  the  taxation  in  mind  is  federal  taxa¬ 
tion,  and  the  idea  is  inculcated  that  the 
lien  pay  and  the  “peepul”  escape. 

A  sane  view  of  taxation  is  that  federal 
taxes  are  only  part  of  the  burden;  that  the 
burden  even  of  federal  taxes  is  not  all  in¬ 
cluded  in  the  tremendous  figures  of  tax  col¬ 
lection;  and  that  eventually  the  entire  bur¬ 
den  is  distributed  to  the  ultimate  consumer. 

In  1909,  under  the  urge  of  President  Taft, 
an  excise  tax  of  1  per  cent  for  the  privilege 
of  doing  business,  measured  by  the  net  in¬ 
come  of  corporations,  was  levied  by  federal 
authority.  It  was  looked  on  as  a  burden. 
It  was,  in  fact,  a  temporizing  measure  de¬ 
signed  to  bridge  over  a  gap  until  authority 
could  be  obtained  for  a  direct  federal  in¬ 
come  tax.  Still  under  the  urge  of  Presi¬ 
dent  Taft,  the  Sixteenth  amendment  to  the 
Constitution  of  the  United  States  was 
adopted,  permitting  a  federal  income  tax. 
The  1913  income  tax  law  was  sponsored 
and  steered  through  Congress  by  Oscar  W. 
Underwood,  now  Democratic  leader  of  the 
Senate,  and  by  Cordell  Hull,  now  chairman 
of  the  Democratic  national  committee. 

Income  Tax  Non-Partisan. 

Thus  the  income  tax  came  into  being  un¬ 
der  nonpartisan  auspices.  It  came  into  be¬ 
ing  just  in  time,  like  the  Federal  Reserve 
act,  to  be — with  the  Federal  Reserve  act — 
salvation  for  the  country  during  the  war. 
The  income  tax  law  became  a  great  and 
useful  “big  stick”  to  commandeer  money 
to  save  the  immediate  situation. 

But  nobody  tried,  during  war  times,  to 
make  it  a  scientific  or  even  a  just  instru¬ 
ment.  The  need  was  to  get  results,  and  re¬ 
sults  were  obtained. 

At  the  peak  of  productivity,  which  was 
for  the  calendar  year  1918,  the  income  tax 
itself  resulted  in  payment  of  $4,286,486,257. 
This  was  more  than  $1,300,000', 000  in  excess 
of  return  for  1917,  and  more  than  $800,000,- 
000  in  excess  of  the  return  for  1919.  In 
1916  the  total  collection  from  this  source 
was  $345,191,844. 

But  due  to  war  stress,  under  which  in¬ 
come  and  excess  profits  taxes  were  levied 
as  recklessly  as  a  patriotic  Congress  could 
see  a  chance  for  collection  of  any  tax  at  all, 
inequalities  of  all  kinds  occurred.  This 
was  accepted  in  all  good  faith  by  every 
taxpayer  as  a  willing  temporary  burden. 

Even  the  enormous  figures  quoted  do  not 
include  the  whole  federal  burden.  To  the 
income  tax  were  added  all  kinds  of  special 
taxes,  so  that  for  the  fiscal  year  ended 
June  30,  1920,  a  peak  of  $5,407,580,251  in 
internal  revenue  taxes  were  attained.  This 
was  more  than  $1,500,000000  in  excess  of 
1919  and  more  than  $800,000,000  In  excess 


18 


of  1921.  Going  back  to  1917  the  total  was 
only  $809,596,640. 

Before  and  After  the  War. 

These  comparisons  are  all  with  years  af¬ 
ter  the  World  war  was  well  under  way. 

Before  the  world  catastrophe,  total  in¬ 
ternal  revenue  of  the  United  States  gov¬ 
ernment  was,  in  1913,  $344,416,965.  There 
were  in  the  same  year  customs  revenues 
of  $318,891,395.  The  figures  previously 
given  are  only  for  internal  revenue.  To 
them,  in  the  total,  should  be  added  an  aver¬ 
age  of  about  $200,000,000  of  customs 
revenue. 

This  illustrates  another  step  in  the  titanic 
progress  of  taxation.  In  1913  customs 
duties  represented  about  48  per  cent  of  the 
total  revenue  of  the  government.  In  1920 
with  customs  returns  of  $324,000,000,  they 
represented  only  a  little  over  half  of  1  per 
cent. 

The  figures  quoted  as  to  the  income  tax 
include,  of  course,  the  excess  profits  tax. 
The  figures  of  the  grand  total  include  re¬ 
turns  from  all  the  crazy  miscellaneous 
taxes  that  were  plastered  on  the  statute 
books,  from  a  20  per  cent  tax  on  ice  cream 
cones  to  taxes  on  dental  cream,  toilet  soap, 
colic  medicine,  automobiles,  imitation 
jewelry,  and  dirk  knives.  Many  of  the 
“nuisance”  taxes  have  been  abolished,  and 
the  excess  profits  tax  has  gone  to  limbo. 
But  heavy  taxation  is  here  to  stay.  The 
problem  is  how  to  adjust  it  with  the  least 
harm  to  the  country  at  large. 

Before  the  war  the  total  cost  of  the 
United  States  government  was  about  $1,- 
000,000,000  annually.  The  budget  for  1922 
involves  expenditure  of  approximately  $4,- 
000,000,000;  of  this  amount  $975,000-, 000  or 
nearly  as  much  as  the  total  expenditure  in 
1913,  is  interest  on  the  public  debt.'  Im¬ 
perative  expenditures,  such  as  veterans 
bureau  and  war  risk  insurance,  war  finance 
and  grain  corporations,  railroad  administra¬ 
tion  and  other  war  activities,  bring  the 
permanent  carrying  cost  of  the  war  for 
years  to  come  to  at  least  $2,500,000,000,  so 
that  with  the  utmost  economy  in  all  cur¬ 
rent  government  operations,  not  hitched  up 
with  the  war  at  all  government  budget  is 
bound  to  be  from  $3,500,000,000  to  $4,000,- 
000,000.  This  is  four  times  the  pre-war  cost 
and  the  pre-war  tax. 

Pre-War  Consumption  Taxes. 

But  before  the  war  the  entire  govern¬ 
ment  revenue  was  raised  frankly  by  con¬ 
sumption  taxes.  Certainly  the  liquor  tax 
and  the  tobacco  taxes  were  straight  con¬ 
sumption  taxes,  and  the  tariff  taxes,  of 
course,  were  added  to  the  cost  of  imported 
goods.  Yet  a  billion  dollars  was  raised  (in¬ 
cluding  postal  revenue)  and  nobody  really 


kne'w  he  was  being  taxed  except  as  the  is¬ 
sue  of  free  trade  and  protection  was  raised 
politically. 

The  fact  is  that  consumption  taxes  could 
now  carry  the  entire  burden  without  rais¬ 
ing  a  ripple  of  comment  if  the  politicians 
were  not  obsessed  with  the  idea  of  ap¬ 
parently  making  only  the  rich  pay — which 
they  do  not  do.  The  income  tax  idea  has 
become  a  fetish.  The  slogan  of  taxation  in 
proportion  to  ability  to  pay  has  run  wild. 
Its  ignorant  application  is  doing  almost  as 
much  harm  now  as  its  temporary  and  op¬ 
portunist  application  did  good  in  the  crisis 
of  war.  Retroactive  taxes  can  confiscate. 
Confiscation,  like  conscription,  was  justified 
in  war  time.  Knowledge  of  taxes  to  come 
cannot  make  water  run  up  hill.  Taxes,  like 
water,  seek  equilibrium. 

Thus  in  the  immediate  application  of  ex¬ 
cess  profits  taxes  and  surtaxes  unexpected 
gains  were  unexpectedly  taken  away — 
which  was  justified  in  a  broad  way  by  the 
origin  of  the  gains  and  the  emergency  for 
their  confiscation.  But  as  soon  as  the  tax 
machine  got  to  working,  natural  law  began 
to  operate.  Natural  laws  are  irresistible, 
by  human  interference.  Known  that  a  big 
income  will  be  subject  to  excessive  surtax 
or  excess  profits  tax,  the  income  ceases  to 
be  big  and  the  tax  evaporates.  The  soap 
bubble  bursts.  Taxes  should  be  based  on 
something  more  material  than  soap  bub¬ 
bles. 


INSTALLMENT  No.  2. 

April  12,  1922. 

One  of  the  loop  holes  for  escape  from  ex¬ 
cessive  tax  is  the  existence  of  a  vast  and 
growing  volume  of  tax  exempt  securities — 
to  be  specific,  state  and  municipal  bonds, 
the  income  from  which  may  not  be  taxed 
by  Federal  authority.  A  business  man, 
who,  before  the  high  surtax  era,  exercised 
his  brain  and  risked  his  money,  took  a 
sporting  chance  to  win  or  lose.  Now,  with 
a  confiscatory  surtax  staring  him  in  the 
face,  he  takes  to  the  woods.  He  saves  both 
his  brain  power  and  his  risk,  for  he  can  in¬ 
vest  in  an  ocean  of  $15,000,00-0,000  or  more 
of  tax  exempt  securities.  Like  the  lily  he 
toils  not,  neither  does  he  spin,  and  yet  he 
is  clothed  in  gorgeous  raiment — all  because 
the  politicians  thought  he  had  been 
“soaked.”  He  was  for  a  minute,  but  not  for 
eternity. 

In  1916  retroactive  surtaxes  made  a 
catch  on  $993,004,086  of  incomes  in  excess 
of  $300,000.  Under  an  increased  rate  such 
incomes  fell  to  $401,107,868  in  1918. 

A  Case  in  Point. 

To  illustrate  how  this  politically  futile 
and  economically  destructive  situation 


19 


could  come  about,  take  the  case  of  the  late 
Jacob  H.  Schiff,  head  of  the  banking  house 
of  Kuhn,  Loeb  &  Co.  Mr.  Schiff  was  a 
patriotic  American,  an  able  business  man, 
a  philanthropist,  but  no  fool.  When  he 
died  in  the  fall  of  1920  it  was  revealed  that 
out  of  a  total  estate  of  $25,633,574  in  stocks 
and  bonds  more  than  two-thirds  were  in 
tax  exempt  securities.  Assuming  an  aver¬ 
age  return  of  four  per  cent  and  no  profits 
at  all  from  Kuhn,  Loeb  &  Co.,  his  income 
for  1920  would  have  been  $1,025,320  and 
the  tax  would  have  been  $681,833.  But,  due 
to  investment  in  tax  exempt  securities,  the 
actual  tax  amounts  to  $156,360' — a  saving  of 
$525,473  for  one  man  alone.  Why  should 
he  worry  his  brains  and  risk  his  money  to 
make  an  inordinate  profit  with  which  to 
pay  an  inordinate  tax?  He  didn’t  and  no¬ 
body  else  will.  Hence  the  collapse  of  the 
surtax  bubble.  Multiply  the  Schiff  case 
by  other  cases  and  you  can  read  the  an¬ 
swer:  Water  seeks  its  level.  One  does  not 
need  to  be  a  prophet  or  the  son  of  a  prophet 
to  tell  you  that  a  policy  that  penalizes 
enterprise  and  discourages  thought  is  na¬ 
tionally  suicidal.  Any  tax  rate  can  be 
made  so  high  that  it  is  non-productive.  The 
$600,000,0-00  of  tax  revenue  lost  to  the  gov¬ 
ernment  by  prohibitory  surtax  rates  must 
be  made  up  somewheie  else.  It,  of  course, 
falls  on  the  “peepul.” 

Evil  of  Excessive  Surtax. 

Unfortunately,  the  tax  exempt  evil  is  in 
large  part  without  remedy.  The  outstand¬ 
ing  volume  of  tax  exempt  securities  can 
never  be  reduced  except  by  payment  on 
maturity,  but  the  issue  of  new  exempt  se¬ 
curities  can  be  forbidden  if  the  states  will 
grant  constitutional  authority.  On  the 
other  hand,  the  remedy  for  high  surtaxes  is 
simple.  A  reasonable  surtax  can  be  en¬ 
acted  by  Congress  if  ignorance,  prejudice 
and  politics  can  be  made  to  see  the  facts. 
It  is  up  to  business  men  to  make  the  facts 
clear,  especially  to  politics,  which  in  this 
case  means  political  congressmen  or  nar¬ 
row  vision  and  demagogic  tendency.  They 
love  votes.  Educate  the  voter  and  the  con¬ 
gressman  will  be  found  with  his  ear  to  the 
ground. 

Under  present  conditions  it  would  seem 
that  a  maximum  surtax  of  25  per  cent  was 
about  the  limit  of  productivity,  and  would 
be  a  point  at  which  brains  and  enterprise 
could  be  attracted  out  of  tax  exempt  in¬ 
vestments  into  business  investments  that 
would  start  the  wheels  of  industry  again, 
provide  employment  and  l-°ave  the  exempt 
field  where  it  be’ongs — since  it  must  con- 
tinue  to  exist — as  the  recourse  of  widows 
and  orphans  and  modest  thrift  where  risk 
is  undesirable. 

Excess  Profits  Tax. 

The  excess  profits  tax  has  gone.  It  was 


always  thoroughly  bad,  except  possibly  as 
the  handiest  war  expedient.  It  was  bungled, 
but  while  prices  were  soaring  it  served  to 
return  some  measure  of  the  excess  prices 
to  the  public  treasury  Since  excess  prices 
are  no  longer  possible,  it  lacks  productiv¬ 
ity;  but  even  in  its  palmiest  days  when  it 
produced  vast  revenues  for  the  treasury, 
it  at  the  same  time  exacted  from  the  peo¬ 
ple  vastly  more  than  it  presented  to  the 
war  chest.  There  is  some  political  senti¬ 
ment  for  its  return.  Let  us  pass  that  over 
at  this  time.  If  the  American  voter  has 
any  common  sense  it  can  never  happen. 

Nevertheless,  the  price  paid  for  repeal  of 
the  excess  profits  tax  has  been  high — too 
high.  Corporations  must  now  pay  a  flat 
federal  income  tax  of  12%  per  cent.  To 
thousands  and  thousands  of  corporations 
and  to  millions  of  stockholders  this  is  a 
more  destructive  burden  than  the  excess 
profits  tax.  No  excess  profits  tax  was  ever 
taken  until  there  had  been  excess  profits. 
Under  the  new  law  the  conservative  cor¬ 
poration  that  never  earned  more  than  8 
per  cent,  and  was  never  subject  to  the  ex¬ 
cess  profits  tax,  must  now  pay  heavier 
taxes  than  ever  before,  while  the  excep¬ 
tional  corporation  that  still  retains  its 
former  earning  power  gets  off  with  a  big 
reduction  in  tax. 

New  Law  a  Mess. 

The  1921  revenue  law  is  such  a  general 
mess,  that  after  all  its  years  of  experience 
in  administration  the  Treasury  department 
has  found  it  necessary  this  year  to  issue 
the  largest  volume  of  regulations  ever  pre¬ 
sented  to  a  puzzled  taxpayer,  and  to  post¬ 
pone  for  three  months  the  filing  of  cor¬ 
porate  returns.  In  addition  to  all  the  other 
ills  and  exactions  of  a  lav/  that  secures  to 
the  treasury  only  a  modicum  of  what  the 
ultimate  consumer  pays,  a  vast  machinery 
of  high  priced  accountancy  and  expert  ad- 
visorship  has  been  created.  Between  the 
cost  of  collection  to  the  government  and 
the  cost  of  making  returns  by  the  taxpayer, 
a  much  larger  extra  bill  of  costs  results  to 
the  body  politic  than  was  the  entire  federal 
tax  in  1913. 

This  may  sound  pessimistic.  Is  there 
remedy?  Yes  and  no.  There  is  remedy*  for 
the  waste  and  futility  of  present  tax  laws. 
There  is  no  remedy  for  the  exaction  of 
enormous  government  revenue.  There  is 
no  reason  why  government  revenue  of  $4,- 
000,000,000  should  cost  the  ultimate  con¬ 
sumer  $8,000,000,000  or  more. 

Farm  Bureau  Tax  Plan. 

Strangely  enough,  perhaps  the  best 
enunciation  of  tax  principles  that  has  been 
put  forth  is  that  of  the  Federation  of  Farm 
Bureau  associations,  which  is  both  the 


20 


father  and  mother  of  the  “farm  bloc”  in 
Congress.  The  Farm  Bureau  Federation 
platform  is  as  follows: 

“1.  The  measure  of  ability  to  pay  taxes 
for  support  of  the  national  government  is 
net  income,  and  the  bulk  of  the  taxes 
should  be  levied  and  collected  on  that 
basis. 

“2.  The  tax  should  be  progressive,  that 
is,  the  greater  the  income  the  higher  the 
rate. 

“3.  As  this  is  the  country  of  all  the  peo¬ 
ple,  all  the  people  should  have  some  part 
in  supporting  the  government,  and  a  cer¬ 
tain  part  of  the  revenues  may  justly  be 
raised  by  means  of  the  tariff  and  other 
consumption  taxes. 

“4.  While  recognizing  that  the  first  con¬ 
sideration  in  any  scheme  of  taxation  is  the 
raising  of  revenues,  its  collateral  effects 
must  not  be  lost  sight  of  and  in  so  far  as 
practicable,  the  taxes  should  be  so  levied 
as  to  tend  to  the  distribution  of  wealth  in 
the  hands  of  the  many  and  not  its  concen¬ 
tration  in  the  hands  of  the  few.” 

Equally  strange  has  been  the  inability 
of  the  Farm  Federation  and  the  farm  bloc 
to  apply  their  principles.  In  fact  the  Farm 
Federation  and  the  farm  bloc  has  been  re¬ 
sponsible  for  the  worst  features  of  the  1921 
law,  and  for  what  agitation  there  is  to  re¬ 
store  the  excess  profits  tax. 

The  Farm  Federation  platform  is  cumu¬ 
lative.  To  begin  backwards,  therefore,  the 
first  consideration  is*  the  raising  of  revenue 
with  collateral  attention  to  the  effect  of 
taxes  to  “tend  to  the  distribution  of  wealth 
in  the  hands  of  the  many  and  not  to  con¬ 
centration  in  the  hands  of  the  few.”  To 
secure  these  results  it  is  necessary  that 
“all  the  people  should  have  some  part  in 
supporting  the  government.” 


INSTALLMENT  No.  3. 

April  13,  1922. 

It  is  elemental  that  all  the  people  have 
some  part  in  supporting  the  government. 
The  trouble  is  that  under  present  and  re¬ 
cent  laws  the  many  bear  an  unfair  burden 
and  the  few  manage  to  concentrate  wealth 
because  the  many — as  misrepresented  by 
political  Congressmen — grease  the  way. 

The  simple  fact  is — or  at  least  I  believe 
it  to  be — that  business  in  all  its  ramifica¬ 
tions — including  wages — receives  benefit 
from  the  government.  Maintenance  of  gov¬ 
ernment  should  be  provided  for  by  a1! 
beneficiaries.  Through  any  tax  based  on 
sales  (which,  of  course,  include  taxes  based 
on  profits  derived  from  sales,  namely,  in¬ 
come  and  excess  profits  taxes)  the  govern¬ 
ment  is  provided  for,  practically,  by  con¬ 
tribution  from  all  the  beneficiaries.  The 
distinction  between  the  income  and  excess 


profits  taxes  and  the  sales  tax  Is  not  in 
their  final  or  actual  impost,  namely,  the 
ultimate  consumer,  but  in  the '  means  of 
collection. 

Under  the  income  tax  plan  the  collection 
is  made  entirely  through  businesses  whose 
operations  have  been  so  conducted  that  the 
sales  exceed  the  cost  and  expenses.  The 
tax  on  salaries,  etc.,  is  not  considered  in 
this  connection.  Under  the  excess  profits 
tax  plan  the  collection  is  made  entirely 
through  business  whose  operations  have 
been  so  conducted  that  the  sales  exceed 
cost  and  expenses  in  an  amount  in  excess 
of  a  prescribed  percentage  on  investment. 
Under  the  sales  tax  plan  the  collection  is 
made  through  all  businesses  as  a  consumer 
expense. 

Paternalistic  Favoritism. 

Under  the  first  two  plans,  the  efficiently 
operated  business — those  with  lower  costs 
and  expenses — bear  the  entire  burden  of 
accounting  for  the  government’s  revenue, 
namely,  the  entire  tax  burden.  Since  under 
our  government  equal  opportunity  is  con¬ 
ceded  to  all  business,  the  result  is  that 
the  less  efficiently  operated  businesses  are 
granted  an  indirect  patrimony  in  that  they 
are  not  required  to  account  to  the  govern¬ 
ment  for  any  amounts  as  taxes.  Unques¬ 
tionably,  the  latter  businesses  did  provide 
in  their  selling  prices  for  government  taxes 
— for  surely  they  did  not  expect  to  operate 
at  a  loss — but  the  government,  with  unac¬ 
countable  paternalistic  favoritism  restores 
to  them  this  expense. 

It  is  self-evident  that,  other  things  being 
equal,  the  businesses  which  are  operated 
at  a  profit  are  the  more  efficient  busi¬ 
nesses;  are  the  businesses  which — from  a 
practical  economic  point  of  view — are  the 
more  deserving.  So  we  have  the  anomalous 
situation  of  paternalism  being  exercised  by 
the  government  in  favor  of  the  less  deserv¬ 
ing  businesses.  The  business  which  failed 
to  keep  its  outgo  below  income  paid  its  full 
amount  for  labor,  for  material,  for  trans¬ 
portation,  for  insurance,  etc.,  etc.,  but  it 
paid  nothing  to  the  support  of  the  govern¬ 
ment.  It  paid  its  own  employes,  but  it  did 
not  pay  its  pro  rata  share  of  the  compensa¬ 
tion  of  employes  working  in  its  interest  in 
the  government. 

A  Practical  and  Just  Tax. 

Taking  up  now  the  third  kind  of  taxes — 
the  sales  tax — we  find  that  in  its  applica¬ 
tion  every  business  collects,  for  the  com¬ 
mon  support  of  the  government,  a  certain 
percentage  for  all  sales — payable  to  the 
government  as  a  proper  cost  of  doing  busi¬ 
ness.  Its  operating  costs  include  a  pro 
rata  share  for  the  support  of  the  country. 
What  a  travesty  of  equity  that  in  its  own 
particular  field  of  operation,  a  business  has 


21 


inescapable  expenses,  but  that  under  pres¬ 
ent  laws,  in  respect  to  the  entire  ground¬ 
work  of  business,  far  transcending  its  little 
field  of  operations — in  its  very  birthright  in 
this  country — it  should  be  considered  to 
have  no  recognized  common  obligation,  di¬ 
rect  and  fixed!  • 

Under  any  of  the  three  plans,  the  tax  is 
paid  by  the  consumer,  regardless  of  the 
propriety  of  the  collection  method.  Under 
the  sales  tax  plan  the  consumer  knows  the 
government  will  receive  directly  the 
amount  he  pays  for  taxes  in  the  purchase 
price  of  the  goods.  Under  the  other  two 
plans  the  amount  he  pays  for  taxes  is  in¬ 
tangible,  impossible  of  identification,  and 
will  be  retained  by  the  business  for  its  own 
purpose  if  it  fails  to  make  a  profit  or  a 
certain  percentage  of  profit  on  invested 
capital. 

The  sales  tax  plan  provides  that  every 
business  transaction  in  the  country  shall 
pay  pro  rata  share  to  the  support  of  the 
country’s  government.  The  income  and 
excess  profit  tax  plans  offer  the  speculation 
that  if  you  make  money,  you  contribute  to 
the  support  of  the  government;  if  you  don’t 
make  money,  the  government  holds  the 
bag. 

In  a  perverse  consideration,  the  latter 
two  plans  promote  the  possibility  that 
costs,  expenses  and  invested  capital  can  be 
so  arranged  that  the  tax  will  be  evaded. • 

The  Farm  Bureau  Federation. 

A  reasonable  interpretation  of  the  Farm 
Bureau  Federation’s  program  would  seem 
to  be  a  sales  tax  supplemented  by  an  in¬ 
come  tax.  First  the  base  and  then  the 
superstructure. 

Advocates  of  a  sales  tax  have  been  of 
many  minds  as  to  its  scope  and  limitations. 
They  have  gradually  drawn  together  in  a 
consensus  that  the  most  desirable  and 
practicable  form  of  sales  tax  for  the  United 
States  is  an  excise  tax  at  a  rate  of  one 
per  cent,  or  less,  upon  the  turnover  of  all 
businesses  involving  the  sale  of  goods, 
wares  and  merchandise,  measured  by  the 
gross  sales  of  such  businesses  in  excess  of 
$6,000  a  year. 

This  consensus  involves  the  view  that 
any  general  sales  tax  should  be  confined  to 
commodities  which  move  through  the 
courses  of  trade  from  the  producer  to  the 
consumer.  It  should  be  shown  as  a  sep¬ 
arate  item  on  the  invoices  of  producers  and 
wholesalers,  and  not  be  included  in  the 
price. 

To  add  to  the  wide  inclusiveness  of  such 
a  tax  by  extending  it  to  services  or  capital 
assets  is  at  the  best,  but  to  increase  the 
vehicles  by  which  the  tax  is  transmitted  to 
the  consumer  without  spreading  the  burden 
more  evenly,  because  every  one  is  a  con¬ 
sumer  of  commodities;  the  tax  on  com¬ 


modities  would  be  in  proportion  to  ex¬ 
penditure. 

A  turnover  tax  on  commodities,  when  in¬ 
voiced,  is  simple  of  administration  and  pro¬ 
ductive  of  large  revenue  with  no  oppor¬ 
tunity  for  loading  or  pyramiding.  The  tax 
goes  to  the  consumer  exactly  as  it  has 
been  collected  by  the  government,  plus 
only  the  percentage  on  profit  that  goes  with 
a  relatively  small  base  tax,  but  collected 
always  down  to  the  retailer,  even  though 
there  be  no  profit. 

Initial  sales  of  his  products  by  the  farm¬ 
er,  the  working  out  of  whose  special  prob¬ 
lems  is  in  the  interest  of  all,  should  be 
excluded  from  the  operation  of  the  tax. 

This  is  essentially  the  tax  which  has 
proved  so  successful  in  Canada  and  the 
Philippines.  It  is  not  the  narrow  tax  which 
proved  less  successful  in  our  country  after 
the  Civil  war,  in  France  and  in  the  earlier 
experience  of  other  countries,  such  as 
Spain. 


INSTALLMENT  No.  4. 

April  14,  1922. 

This  final  installment  of  the  address  of 
Mr.  V.  L.  Highland,  a  Clarksburg,  W.  Va., 
banker,  on  the  sales  tax,  will  be  followed 
by  a  contribution  on  that  subject  tomorrow 
by  Mr.  Hazen  J.  Burton  of  the  National 
Tax  association,  student  and  authority  on 
the  sales  tax. — The  Minneapolis  Tribune. 

Detailed  application  of  the  sales  tax  is 
what  proves  it  to  be  solution  of  the  Fed¬ 
eral  tax  situation — and  the  negative  of 
what  the  politicians  say  about  it.  Just 
one  short  illustration  must  suffice: 

A  wool  dealer  pays  say  $6  for  enough 
wool  to  make  a  $60  suit  of  clothes.  It  is 
billed  to  him  at  $6,  plus,  under  a  1  per  cent 
tax,  a  separate  item  of  6  cents.  He  scours 
the  wool  to  get  the  grease  out  and  sells  it 
to  the  spinner  for  $8  plus  8  cents  tax.  The 
spinner  converts  it  into  yarn,  which  he 
sells  to  the  weaver  for  $10  plus  a  10  cents 
tax.  The  weaver  converts  the  yarn  into 
cloth  and  sells  it  to  the  clothing  manu¬ 
facturer  for  $14,  plus  a  14-cent  tax.  Total 
tax  so  far  paid  and  transmitted  to  the  gov¬ 
ernment  has  been  38  cents. 

Trimmings,  linings,  buttons,  etc.,  consti¬ 
tute  about  one-half  the  value  of  the  ma¬ 
terial  going  into  a  suit.  They  have  been 
assembled  after  going  through  various  pro¬ 
cesses  where  a  1  per  cent  tax  has  also  been 
paid,  so  the  tax  on  them  has  been  19 
cents,  making  a  total  to  date  of  57  cents  on 
material  of  a  value  of  $21. 

No  Shirking  or  Pyramiding. 

The  manufacturer  converts  the  material 
into  the  suit  which  he  sells  for  $40,  plus  a 
40-cent  tax.  As  the  suit  reaches  the  re- 


22 


tailer  the  tax  has  become  97  cents,  all  of 
which  has  gone  to  the  government  with 
absolutely  no  opportunity  for  pyramiding 
or  for  shirking.  Prices  have  been  estab¬ 
lished  at  each  step  by  open  competition, 
where  every  competitor  has  faced  an  equal 
tax,  which  he  has  been  compelled  to  item¬ 
ize  in  his  invoices,  no  matter  whether  the 
prices  reflect  a  profit  or  a  loss.  The  tax 
has  been  a  cost  just  like  every  other  cost, 
whether  for  labor,  freight  or  overhead. 
The  retailer  knows  that  the  suit  has  cost 
him  $40.40.  He  sells  it  in  competition  with 
other  retailers,  who  also  have  had  definite 
costs.  If  he  sells  for  $60,  the  tax  which  he 
pays  to  the  government  is  60  cents,  mak¬ 
ing  the  total  that  the  government  has  re¬ 
ceived  $1.57,  or  2.62  per  cent  on  the  sale 
price. 

In  the  steps  from  the  wool  dealer  to  the 
retailer,  it  has  been  compulsory  that  price 
be  made  before  the  tax,  and  the  tax  added 
on  as  a  separate  item.  It  is  proposed  that 
the  retailer  absorb  the  60-cent  tax  in  his 
selling  price  instead  of  invoicing  it  to  the 
wearer.  He  can  charge  $60  and  pay  the 
tax  himself,  or  charge  $60.60  or  $61  or  $70. 
The  retailer  is  the  only  man  in  the  chain 
who  can  profiteer  or  absorb  so  far  as  the 
tax  is  concerned,  and  he  in  turn  is  subject 
to  competition  on  even  terms  with  all  other 
retailers. 

It  has  been  objected  that  invoicing  the 
tax  would  be  complicated  and  bothersome. 
Why?  Every  order  filled  by  any  manufac¬ 
turer  or  merchant  is  billed.  To  add  a  1 
per  cent  tax  item  at  the  end  of  each  in¬ 
voice  is  simplicity  itself.  Thus  a  whole¬ 
sale  grocer  bills  a  mixed  order  for  flour, 
sugar,  canned  goods  and  tea,  amounting  to 
$367.50.  The  last  line  of  his  invoice  be¬ 
comes  “1  per  cent  tax,  $3.68.”  Every  busi¬ 
ness  man  has  to  keep  books.  The  very 
first  line  of  the  corporation  income  tax 
blank  reads :  “Gross  sales,  less  returns  and 
allowances.”  There,  on  the  instant  is  the 
base  for  the  turnover  tax  for  every  tax¬ 
payer.  The  sales  tax  amounts  to  1  per 
cent  (or  whatever  the  rate  may  be)  on 
that  item.  In  practice  every  business  man 
knows  that  item  at  the  end  of  each  month, 
and  his  payments  would  be  made  to  the 
government  monthly.  Nothing  could  be 
simpler  or  more  exact.” 

The  turnover  sales  tax  is  in  fact  nothing 
but  an  amplification  of  the  excise  taxes  on 
liquor  and  tobacco  that  have  been  in  ex¬ 
istence  ever  since  the  foundation  of  the 
government  without  the  slightest  bit  of 
friction  or  bother. 

Tax  Will  Commend  Itself  to  Farmers. 

When  automobiles  were  young  some 
farmers  called  them  devil  wagons.  They 
fought  them,  reviled  them  for  themselves 


and  because  they  scared  foolish  horses  and 
tore  up  worthless  roads,  jeered  at  them. 
There  are  no  longer  any  foolish  horses,  and 
the  farmers  themselves  are  the  largest 
users  of  automobiles  and  the  warmest  ad¬ 
vocates  of  sane  expenditure  for  good  roads. 

venture  to  predict  that  automobile  his- 
*tory  will  repeat  itself  in  the  history  of  the 
turnover  sales  tax.  When  the  cobwebs  of 
misinformation  have  been  blown  away — 
which  will  be  just  as  soon  as  the  farmers 
stop  listening  to  leaders  who  talk  about  a 
sales  tax  being  designed  to  relieve  the  rich 
by  putting  all  the  tax  “on  the  backs  and 
bellies  of  the  common  people,”  and  begin 
to  think  for  themselves — they  will  display 
their  own  innate  common  sense. 

No  “class  tax”  can  be  a  success.  It  is 
based  on  wrong  principles.  There  is  no 
such  thing  as  painless  taxation  any  more 
than  there  is  painless  dentistry.  Both  are 
necessary  evils.  But  dentistry  is  increas¬ 
ingly  painful  and  expensive  in  proportion 
as  neglect  by  the  individual  produces  bad 
conditions.  No  person  can  decrease  by  an 
iota  his  suffering  or  his  expense  by  let¬ 
ting  his  own  teeth  decay  in  the  complacent 
belief  that  the  rich,  having  been  equally 
negligent,  must  suffer  and  pay  also.  The 
suffering  cannot  be  greater,  even  though 
the  expense  is. 

So  it  is  with  taxation.  Neither  the  rich 
nor  the  poor  have  paid  much  attention  to 
it  in  the  past,  and  the  suffering  and  ex¬ 
pense  have  grown  far  beyond  the  point  of 
necessity.  If  all  would  keep  their  mouths 
clean,  there  would  be  far  less  trouble. 

Class  Taxation  Futile. 

No  good  can  result  from  trying  to  tax  the 
North  at  the  expense  of  the  South,  or  farm¬ 
ers  at  the  expense  of  Wall  Street.  All 
real  interest  is  mutual.  Wall  Street  cer¬ 
tainly  never  prospers  when  the  farmer  is 
down  and  out.  As  a  matter  of  fact,  Wall 
Street  studies  the  farm  situation  most  in¬ 
tensively,  and  knows  all  about  it.  When 
the  farmer  is  prosperous  Wall  Street  looks 
for  good  business  generally;  and  Wall 
Street  is  the  center  of  business,  whatever 
politicians  may  say.  When  the  farmer  is 
down  and  out,  Wall  Street  takes  to  the 
woods.  Therefore  the  cry  that  Wall  Street, 
or  the  monied  interest  generally,  seeks  to 
destroy  the  farmer  is  to  say  that  a  wise 
husbandman  deliverately  chops  down  the 
tree  that  bears  fruit  and  kills  the  goose 
that  lays  the  golden  eggs.  It  is  the  last 
word  in  ignorance. 

Collective  Wall  Street — by  which  I  mean 
all  that  body  of  investment  possibility 
throughout  the  United  States,  represented 
by  a  surplus  saved  over  living  expenses, 
which  in  order  to  be  useful  to  the  prudent 
wage  earner  or  business  man  must  be  re* 


23 


invested  in  something  outside  of  his  im¬ 
mediate  environment — knows  that  taxes 
must  be  just  and  equitable  in  order  that 
everybody  must  prosper  together.  Other¬ 
wise  there  could  be  no  investment  field. 


April  15,  1922. 

Data  and  Opinions  on  the  Sales  Tax 
Selected  from  Recent  Articles  by  Hazen 
J.  Burton,  member  of  the  National  Tax 
Association. 

— From  the  Minneapolis  Tribune. 

THE  PENNSYLVANIA  SALES  TAX. 

The  following  figures  from  the  single 
state  of  Pennsylvania  are  evidence  of  the 
immense  sums  that  can  be  collected,  with 
minimum  cost  and  maximum  efficiency,  by 
the  simple,  moderate  sales  tax  on  dealers 
only: 

“Office  of  the  Auditor  General, 
“Harrisburg,  Feb.  25,  1922. 
“Hon.  Isaac  Bacharach, 

“House  of  Representatives: 

“For  the  fiscal  year  ending  November  30, 
1921,  the  Commonwealth  received  the  fol¬ 
lowing  net  amounts  after  all  overhead  ex¬ 
penses  had  been  deducted:  Retail  mer¬ 
cantile  licenses,  $2,443,324.67  (1  mill  tax 
per  dollar) ;  Wholesale  mercantile  licenses, 
$887,720.65  (one-half  of  1  mill  per  dollar). 

“In  Pennsylvania  under  the  act  of  1899  a 
mercantile  license  is  measured  by  the  gross 
annual  business  transacted  during  the  pre¬ 
vious  calendar  year,  as  represented  by  cash 
sales  and  sales  on  credit.  The  basis  of 
the  mercantile  law  of  Pennsylvania  is, 
therefore,  a  sales  tax  assessed  against  the 
dealers. . . . 

“Taking  the  net  payments  for  the  fiscal 
year  1921  as  a  basis  these  payments  would 
indicate  sales  made  for  the  previous  calen¬ 
dar  year  ending  December  31,  1920,  in  the 
following  amounts: 

One  mill  on  Retailers . $2,443,324,670 

One-half  mill  on  Wholesalers.  1,775,441,300 


Total  . $4,218,765,970 

“It  will  thus  be  noted  that  our  mercan¬ 
tile  tax  upon  dealers  is  based  upon  the 
sales  of  more  than  four  billions  of  dollars, 
not  including  the  sales  made  by  manufac 
turers  in  Pennsylvania. . . . 

“C.  W.  Myers,  for  S.  S.  Lewis,  Auditor 
General.” 

What  of  the  Sales  Tax? 

“The  taxes  now  laid  on  business  have  an 
unhappy  effect  on  the  consumer  because 
they  are  indefinite.  During  the  govern¬ 
ment  investigation  of  ‘profiteering’  under 
the  Lever  Act,  when  retail  prices  were 
nrobably  at  the  peak,  a  representative  of 


the  Department  of  Justice  stated  that  23.2 
per  cent  of  the  then  retail  prices  was  due 
directly  to  taxes.” 

(NOTE.  Every  unwise,  unequal,  uncer¬ 
tain,  annoying  or  excessive  tax  cost  must 
be  compounded  in  their  selling  prices  by 
all  manufacturers  and  distributors  who  ex¬ 
pect  to  survive  in  competitive  business.) 

It  was  stated  in  the  special  letter  August 
12,  of  the  Harvard  University  Committee 
on  Economic  Research,  as  follows: 

“The  maladjustment  between  the  prices 
of  farm  products  and  raw  materials  and 
the  prices  of  manufactured  goods  is  the 
most  significant  instance  of  price  malad¬ 
justment.” 

This  obstacle  of  “price  maladjustment” 
and  its  causes  should  be  again  analyzed 
and  presented  to  Congress  by  the  Federal 
Department  of  Justice. 

Reduce  the  Present  Tax  Cost  Spread  of 
23  Per  Cent  to  3  Per  Cent. 

At  the  annual  conference  of  the  National 
Tax  Association,  September  12  to  16,  1921, 
Mr.  H.  C.  McKenzie,  representing  the 
American  Farm  Bureau  Federation,  made  a 
valuable  statement  of  the  “four  principles 
of  taxation.”  His  attention  was  called  by 
Hazen  J.  Burton  of  Minnesota  to  the  entire 
disregard  of  these  four  principles  by  the 
existing  tax  cost  spread  of  20  per  cent,  this 
fact  being  the  key-log  of  the  present  log¬ 
jam  in  all  business.  Mr.  Burton  then  read 
for  record  from  the  volume  of  Revised 
Hearings,  May  9  to  27,  1921,  before  the 
Senate  Finance  Committee  from  the  state¬ 
ment  of  C.  B.  Clark,  representing  several 
national  association  of  distributors,  page 
182. 

It  seems  unfortunate  that  so  important 
an  association  as  the  American  Farm 
Bureau  Federation,  representing  the  great¬ 
est  in  the  country,  should  not  through  its 
representatives  have  an  intelligent  under¬ 
standing  of  the  actual  facts.  It  is  worse 
than  folly  for  Mr.  McKenzie  or  the  farmers 
to  refuse  to  recognize  these  facts.  They 
are  trying  to  force  a  situation  in  which  the 
farmer  is  already  the  first  and  worst  suf¬ 
ferer.  It  is  the  duty  and  also  the  interest 
of  practical  statesmanship  to  save  them 
from  their  own  mistakes. 

One  more  paragraph  will  further  en¬ 
lighten  us  as  to  the  premises  on  which  Mr. 
McKenzie  holds  his  faith  in  profits  taxa¬ 
tion.  He  states: 

“The  fact  is  that  those  gentlemen  in  the 
Treasury  are  accumulating  a  fund  of  pre¬ 
cedent  that  will  help  them  in  solving  a  lot 
of  their  problems — 

(They  are  getting  deeper  in  the  mire  of 
insolubility  every  month.) 


24 


“They  are  accumulating  an  efficient  staff 
that  will  stay  with  them.” 

(The  current  turnover  exceeds  100  per 
cent  a  year  of  personnel.) 

“The  Supreme  Court  is  handing  down  de¬ 
cisions  from  time  to  time  which  are  iron¬ 
ing  out  a  lot  more  of  your  troubles.” 

(Having  recently  made  it  clear  that  in¬ 
terest  from  municipal  bonds  is  tax-free — 
Evans  vs.  Gore,  253  U.  S.  245,  and  that  un¬ 
distributed  corporate  profits  or  stock  div¬ 
idends  cannot  be  taxed  to  stockholders — 
Eisner  vs.  Macomber?  252  U.  S.  189.) 

Mr.  McKenzie’s  argument  is  much  more 
'  for  the  excess  profits  tax  and  surtaxes  than 
against  the  sales  tax.  He  has  no  alter¬ 
native  to  propose,  no  plan  to  raise  revenue, 
except  to  double  the  rates  on  the  excess 
profits  tax.  He  several  times  promises  to 
disclose  “later”  a  definite  program,  but 
does  not  propose  anything  except  that  75 
per  cent  must  be  raised  from  incomes  and 
excess  profits  taxes  and  not  over  25  per 
cent  from  consumption,  (Note:  75  per  cent 
from  personal  income  plus  inheritance  tax 
and  25  per  cent  from  Sales  Tax  on  business 
is  a  better  plan),  he  thinks  the  postage 
rate  might  be  raised  to  3  cents,  and  he 
does  not  think  the  inheritance  taxes  should 
be  increased;  also  he  would  submit  “to 
the -people  a  constitutional  amendment  to 
stop  issuing  tax-free  securities,”  which,  of 
course,  would  have  no  effect  on  present 
revenue.  He  apparently  favors  tax-free 
joipt  stock  and  land  bank  loans  as  long  as 
the  states  and  cities  issue  tax-free  bonds. 

A  full  perusal  of  Mr.  McKenzie’s  tes¬ 
timony  will  make  clear  the  important  point 
we  wish  to  make  that  the  alleged  opposi¬ 
tion  of  the  farmer  as  of  the  workingman 
to  the  sales  tax  rests  on  a  total  misappre- 
hensive  of  the  whole  revenue  situation.  It 
may  be  impossible  for  this  misappre¬ 
hension  to  be  quickly  removed.  But  it  is 
not  impossible  for  a  better  informed  Con¬ 
gress  to  act  in  the  true  interest  of  the 
farmer  and  convince  him  by  results  of  the 
greater  wisdom  of  his  representative.  The 
fact  that  all  classes  in  Canada  are  satisfied 
with  a  general  turnover  tax  which,  despite 
its  exemptions,  imposes  substantially  an 
evenly  distributed  burden  on  consumption, 
is  the  best  answer  to  Mr.  McKenzie’s  un¬ 
founded  fears. 

Mr.  T.  E.  Atkeson  of  the  National  Grange, 
did  not  appear  before  the  Senate  Commit 
tee,  but  submitted  a  written  statement  op¬ 
posing  the  sales  tax.  Unlike  some  opposi¬ 
tion  witnesses,  he  seems  to  at  least  appre¬ 
ciate  the  difficulties  of  the  present  revenue 
situation. 

He  would  apparently  continue  the  ex¬ 
cess  profits  tax,  and  make  up  for  its  loss 
in  revenue  by  an  additional,  not  an  alter¬ 


native  tax  on  corporations.  In  this  he  is 
entirely  logical.  If  we  are  to  have  an  ex¬ 
clusive  income  tax,  we  must  be  prepared  to 
increase  the  rate  of  tax  on  declining  in 
comes.  If  this  viewpoint  is  to  be  met,  it 
means  a  higher  tax  on  business  and  moder¬ 
ate  incomes.  It  means,  in  fact,  something 
approaching  an  economic  stasis.  In  the 
point  of  protecting  the  revenue,  “the  lower 
the  income  the  higher  the  tax”  must  be  the 
rule.  This  is  the  underlying  fallacy  of  Mr. 
Atkeson’s  position.  It  is  best  answered  by 
the  statement  of  Mr.  James  Duncan,  Vice- 
President  of  the  “Federation  of  Labor,” 
“that  the  dual  system,”  i.  e.  a  sales  tax  sup¬ 
plementing  the  income  tax,  “will  supply 
revenue  for  the  Federal  Government  more 
plentifully,  more  easily  and  more  equitably 
than  any  single  system  of  taxation  could 
do,”  and  by  the  actual  experience  of  all 
classes  in  the  Philippines  and  Canada. 

Commercial  Failures  in  1922. 

Dun’s  Review  for  week  ending  April  8, 
1922,  states: 

“The  first  quarter’s  insolvency  -state¬ 
ment,  as  recent  monthly  returns  had  plain¬ 
ly  foreshadowed,  makes  an  adverse  exhibit. 
Not  only  were  commercial  failures  during 
the  three  months  just  recently  ended  more 
numerous  than  in  any  preceding  quarter, 
but  the  liabilities  were  also  unprecedented. 
With  7,517  defaults  for  $218,000,000  of  in¬ 
debtedness,  the  first  quarter’s  statement 
discloses  an  increase  of  54  per  cent  in 
number,  and  practically  21  per  cent  in 
amount  over  the  figures  for  the  correspond¬ 
ing  period  last  year,  and  the  expansion  in 
the  business  mortality  was  countrywide. 
Without  exception,  more  insolvencies  oc¬ 
curred  in  each  of  the  eight  geographical 
divisions  into  which  the  record  is  sep¬ 
arated.” 

An  Important  Agricultural  Inquiry. 

What  is  good  for  the  farmer’s  business 
is  good  for  every  other  business.  In  a 
close-knit  civilization,  such  as  that  of  our 
time,  all  classes  are  interdependent  and  all 
should  work  together.  One  cannot  suc¬ 
cessfully  oppress  the  rich,  the  poor  or  the 
middle  class. 

Representative  Sydney  Anderson  of 
Minnesota,  chairman  of  a  joint  committee 
of  the  Senate  and  the  House,  the  Commis¬ 
sion  of  Agricultural  Inquiry,  has  been 
gathering  and  arranging  valuable  facts  for 
nearly  a  year.  He  has  drafted  whatever 
technical  skill  in  the  nation  that  he  wanted, 
and  is  about  ready  to  give  Congress  his 
report.  It  is  believed  that  it  will  furnish 
a  basis  for  the  solution  of  many  problems 
of  the  prices  that  have  been  attached  to 
the  products  of  the  farm,  through  the  many 
manufacturing  processes,  and  have  culmin- 


25 


ated  in  the  final  retail  prices  to  the  con¬ 
sumer. 

However  the  detailed  facts  may  vary  in 
the  valuable  work  of  this  Anderson  com¬ 
mission  when  analyzing  the  specific  items 
of  the  operating  costs  of  marketing  the  va 
rious  farm  products  in  their  journey 
through  the  many  processes  of  manufac¬ 
ture,  the  general  universal  item  of  tax  cost 
will  yet  remain  the  chief  obstruction  to 
business  at  every  stage  of  the  game. 

The  present  maze  of  business  taxes  was 
not  advocated  by  business  men,  who  ask 
simply  that  the  full  amount  of  federal  taxes 
be  raised  by  the  Graduated  personal  in- 
come  tax  (for  75  per  cent)  plus  the  1  per 
cent  commodity  sales  tax  (for  25  per  cent) 
on  all  sales  exceeding  $6,000  per  annum, 
thus  removing  all  other  business  tax  ob¬ 
structions. 

Trade  and  Commerce. 

“Trade  and  commerce,”  said  Thoreau,  “if 
they  were  not  made  of  India  rubber,  would 
never  manage  to  bounce  over  the  obstacles 
which  legislators  are  continually  putting  in 
their  way;  and,  if  one  were  to  judge  these 
men  wholly  by  the  effects  of  their  actions 
and  not  partly  by  their  intentions,  they 
would  deserve  to  be  classed  and  punished 
with  those  mischievous  persons  who  put 
obstructions  on  the  railroads.” 

Thoreau’s  illustration  can  be  continued 
by  likening  the  1  per  cent  or  y2  of  1  per 
cent  business  sales  tax  to  the  sand  thrown 
on  the  rails  by  locomotive  engineers  in 
order  to  start  the  train,  accelerate  its  mo¬ 
tion  and  make  the  grade.  But  the  common- 
sense  of  the  captains  of  industry  insists 
that  the  Big  Rocks  and  Boulders  of  uncer¬ 
tain,  excessive  taxation  be  cleared  away 
and  that  problematical  business  profits  be 
taxable  only  when  they  have  been  unques¬ 
tionably  earned  and  have  been  safely  paid 
over  in  dividends  to  individuals  and  made 
returnable  on  their  personal  income  tax 
statements. 

“Partakers  in  the  Government.” 

The  1  per  cent  sales  tax,  to  everybody, 
is  practically  the  smallest  indirect  tax  any 
voter  can  pay  to  become  a  “partaker  in 
the  government,”  and  be  qualified  to  vote 
intelligently  on  matters  of  taxation.  While 
for  all  the  well-to-do  and  rich  people  a  rea¬ 
sonable  graduated  income  tax,  in  connec¬ 
tion  with  the  sales  or  turnover  tax,  will  act 
both  as  a  levelling  tax  between  concerns 
that  make  little  or  no  profits  and  concerns 
which  make  large  profits,  and  a  tax  based 
upon  “ability  to  pay.” 

The  logic  of  continuous  economic  facts 
and  disappointing  tax  collections  during 
the  past  two  years  (as  predicted  by  prac¬ 
tical  business  men  and  leading  professional 


economists),  has  probably  carried  convic¬ 
tion  to  the  few  remaining  academic  op¬ 
ponents  of  the  sales  tax  (for  political  rea¬ 
sons  only)  upon  whose  theories  the  farmer 
and  labor  organizations  formerly  based 
their  political  judgment. 

Direct  and  Indirect  Taxes. 

In  the  “Bulletin  of  the  National  Tax  As¬ 
sociation”  for  February,  1922,  there  ap¬ 
pears  an  illuminating  paper  by  Prof.  E.  R. 
A.  Seligman  entitled,  “The  Federal 
Finances,”  from  which  is  quoted  in  part  as 
follows: 

“The  old  discussion  as  to  the  relative 
merits  of  direct  and  indirect  taxes  has 
been  replaced  by  the  newer  debate  as  to 
the  merits  of  taxes  on  wealth  compared 
with  taxes  on  consumption,  of  taxes  on 
savings  compared  with  taxes  on  spendings, 
of  taxes  on  earnings  or  income  as  com¬ 
pared  with  taxes  on  sales  or  transactions. 

“As  to  this  controversy,  which  must  be 
settled  before  our  fiscal  system  assumes  its 
permanent  form,  it  may  be  said  that  recent 
years  have  afforded  us  considerable  en¬ 
lightenment  as  to  the  unintended  effects  of 
taxation.  Our  excess  profits  tax  had  at 
least  three  unfortunate  results:  It  was  re¬ 
pressive,  in  that  it  rendered  unavailable 
large  sums  which  would  otherwise  have 
gone  towards  strengthening  and  expanding 
the  business;  it  led  to  extravagant  and 
wasteful  expenditure  in  the  shape  of  undue 
advertising,  lavish  repairs  and  over-gener¬ 
ous  salaries;  it  engendered  more  or  less 
unsound  changes  in  business  practice  by 
putting  a  premium  on  over-capitalization. 

“Our  exaggerated  surtax  rates  on  in¬ 
comes  undoubtedly  operated  somewhat  to 
check  investment  in  new  enterprises,  al¬ 
though  if  the  truth  be  told,  it  was  not  so 
much  the  high  rate  as  the  tax-exemption 
feature  which  contributed  to  this  result. 

“What  is  often  forgotten,  however,  is 
that  excessive  taxes  on  wealth  and  indus¬ 
try,  while  producing  their  repressive  effect 
on  enterprise,  indirectly  but  none  the  less 
surely  react  upon  the  wider  classes  of  the 
community  whose  prosperity  is  more  or 
less  intimately  bound  up  with  business 
activity.  An  exaggerated  tax  on  industry 
and  commerce  which  accentuates,  even  if 
it  does  not  create,  business  lethargy  and  in¬ 
activity  and  which  helps  to  prevent  full 
employment  and  higher  wages,  may  be  as 
disastrous  for  the  workman  as  an  indirect 
tax  on  his  expenditure  or  a  direct  tax  on 
his  wages.  There  is  much  reason  to  believe 
that  our  post-war  system  of  taxation  has 
exerted  a  very  perceptible  effect  on  busi¬ 
ness  enterprise  and  has  helped  to  intensify 
the  prevalent  depression,  with  its  after- 
math  of  unemployment  and  suffering. 


26 


Tax  on  Undistributed  Earnings. 

^Moreover,  a  tax  on  undistributed  earn¬ 
ings  will  not  alone  fail  to  produce  equality, 
but  will  be  apt  to  engender  unsound  busi¬ 
ness  practices  in  forcing  the  distribution 
of  earnings. 

“The  attempt  to  create  equality  is  also 
in  great  part  unnecessary.  For  the  gov¬ 
ernment  will  ultimately  secure  its  rightful 
share  of  the  undistributed  earnings.  One 
of  three  things  must  happen :  First,  the  sur¬ 
plus  accumulated  in  a  good  year  will  be 
utilized  to  reduce  the  deficit  in  a  bad  year, 
and  especially  with  a  tax  system  which  em¬ 
ploys  the  method  of  averages  over  a  num¬ 
ber  of  years,  will  operate  finally  to  give 
the  government  its  due.  Secondly,  the  ac¬ 
cumulation  of  a  surplus  beyond  a  certain 
point  will  be  apt -to  be  prevented  by  the 
pressure  of  the  stockholders  to  receive 
dividends,  so  that  if  the  rate  of  taxation  re¬ 
mains  fairly  constant  there  will  be  little 
advantage  in  delay.  Thirdly,  with  every 
accumulation  of  surplus  the  stock  will  be¬ 
come  more  valuable,  so  that  when  it  is  sold 
the  government  will  secure  its  share  in  the 
taxation  either  of  capital  profits  or  of 
periodical  income.  This  assumes,  of  course, 
that  realized  capital  profits  are  to  be  in¬ 
cluded  in  the  concept  of  income.” 

We  now  quote  from  Prof.  Seligman’s 
hearing  before  the  Committee  of  Finance, 
United  States  Senate — May  9th  to  27,  1921 
— Revised  Hearings  p.  476. 

Prof.  'Seligman.  We  come  now,  Mr. 
Chairman,  to  a  very  important  point. 

“I  think  that  when  you  consider  the  re¬ 
form  of  the  whole  tax  system  you  ought 
carefully  to  look  after  our  corporate  in¬ 
come  tax.  I  think  that  we  have  gone  off 
on  a  wrong  tangent  in  this  country  through 
no  fault  of  anybody  in  particular,  but 
through  inattention  to  fundamental  prin¬ 
ciple.  In  my  opinion  it  is  better,  admin¬ 
istratively  more  simple  and  fiscally  more 
satisfactory  if  we  were  to  distinguish 
frankly  between  an  income  tax  imposed 
only  on  individuals  and  a  business  tax  im¬ 
posed  not  alone  on  corporations  but  also 
on  all  businesses,  including  partnerships 
and  corporations  sole.  The  advantage  of 
limiting  an  income  tax  to  individuals  is 
that  an  individual  would  then  pay  a  tax 
on  his  dividends  just  as  everybody  else 
pays.  If  a  man  gets  dividends  from  a  cor¬ 
poration,  why  should  he  be  treated  dif¬ 
ferently  from  a  man  who  gets  his  income 
from  a  piece  of  land  that  is  taxed?  A 
corporation  may  be  taxed  as  a  mere  mat 
ter  of  business,  or  land  may  be  taxed,  as 
is  done  by  all  our  States.  No  man  claims, 
for  instance,  in  New  York  or  Wisconsin, 
that  he  should  be  exempt  from  a  tax  on  in¬ 
come  because  he  is  already  paying  a  tax 


on  land.  So,  in  the  same  way,  no  man  is 
right,  theoretically  speaking,  in  claiming 
that  he  should  be  exempt  even  from  a  nor 
mal  tax  on  income  simply  because  it  hap¬ 
pens  to  come  from  a  corporation.” 

Senator  Watson.  You  want  the  indi¬ 
vidual  to  be  the  unit  of  taxation? 

“Prof.  Seligman.  Yes,  Senator,  I  want  the 
individual  to  be  the  unit  of  taxation.  Then 
if  you  need  more  money,  put  a  tax  on  busi¬ 
ness,  just  as  you  put  a  tax  on  land.  Your 
business  tax  would  not  be  a  large  tax,  5 
or  10  per  cent  of  the  profits  of  all  busi¬ 
nesses,  whether  in  corporate  form  or  in  in¬ 
corporate  form.  It  would  be  just  as  easily 
administered  as  our  present  corporation 
tax  is,  and  it  would  meet  with  the  ap¬ 
proval,  I  am  inclined  to  think,  of  the  busi¬ 
ness  community,  because  it  would  be  a  just 
tax.  Being  a  tax  only  on  profits,  if  there 
are  no  profits  there  will  not  be  any  tax,  and 
if  there  are  small  profits  there  will  be  only 

a  small  tax . Thereafter  subjecting  all 

shareholders  to  the  income  tax  on  div¬ 
idends,  remitting  the  corporate  income  tax, 
I  should  impose  the  new  and  additional 
flat  tax  on  business  profits.  I  should  not 
call  it  a  corporation  tax— although  the 
name  is  not  very  important.  What  I  have 
in  mind  is  a  tax  upon  the  profits  of  all  busi¬ 
ness  of  about  5  to  8  per  cent . I  think 

that  as  soon  as  you  attempt  to  tell  a  cor¬ 
poration  what  it  should  do  with  its  profits 
you  are  getting  into  troubled  waters,  and 
would  it  not  be  still  better  to  abolish  the 
entire  corporate  income  tax,  and,  after 
making  stockholders  liable  as  individuals 
on  their  dividends,  to  replace  the  corporate 
income  tax  with  a  flat  rate  tax  on  all  busi¬ 
ness  profits,  corporate  or  partnership.” 

(Note:  Now  in  normal  peace  time  condi¬ 
tions  the  average  normal  net  profits  of 
business,  as  regulated  by  free  competition, 
vary  but  little  from  10  per  cent  to  15  per 
cent  of  the  gross  sales.  Prof.  Seligman 
recommends  a  “5  per  cent  to  8  per  cent  tax 
on  the  profits  of  all  business.”  This  would 
figure  5  per  cent  of  10  per  cent  of  sales  up 
to  8  per  cent  of  15  per  cent  of  sales, — i  e. 
from  V2  of  1  per  cent  sales  tax  to  1%  per 
cent  sales  tax.  1  per  cent  sales  tax  is 
practically  as  recommemnded  by  the 
United  States  Chamber  of  Commerce.) 

(Note:  Under  the  present  tax  system, 
the  cost  of  time  and  expert  advice  required 
by  the  government  and  the  taxpayer  in 
making  the  tax  returns  is  estimated  at 
five  hundred  million  dollars.) 

The  cost  would  be  much  less  under  Selig¬ 
man’s  5  per  cent  to  8  per  cent  net  business 
income  tax,  which  rests,  however,  on  the 
doubtful  base  of  profit  and  at  best  can 
hardly  equal  the  revenue  from  the  positive, 


27 


simple  commodity  sales  tax  at  the  rate  of 
even  one-half  of  one  per  cent.) 

The  Logical  Basis. 

To  show  the  simple  logical  basis 
for  the  sales  tax  on  this  purely  busi¬ 
ness  process  we  quote  from  “Federal 
Income  Taxation,”  by  Prof.  T.  S.  Adams,  on 
page  551,  August  number  of  the  “Quarterly 
Journal  of  Economics”:  Business  taxes  are 
imposed  because  it  costs  money  to  main¬ 
tain  a  market  and  those  costs  should  in 
some  way  be  distributed  over  all  the 
beneficiaries  of  that  market.  Looking  at 
the  same  question  from  another  viewpoint, 
a  market  is  a  valuable  asset  to  the  social 
group  which  maintains  it  and  the  com¬ 
munity  ought  to  charge  for  the  use  of 
community  assets.  As  a  matter  of  pure 
business  logic  the  government  might  well 
measure  the  tax  by  gross  business,  saying 
in  effect  to  the  business  man:  “You  have 
come  amongst  us  and  have  exploited  our 
market;  you  have  trafficked  as  much  as 
your  competitor;  whether  you  have  used 
your  opportunity  as  well  as  he  is  not  our 
concern.  It  is  the  gross  volume  of  your 
trade  which  both  represents  your  oppor¬ 
tunity  and  causes  our  expense.  Upon  that 
you  must  pay.” 

And  again  on  page  552,  Prof.  Adams  well 
states  the  tax  obstruction  to  business,  as 
follows: 

“The  real  case  against  the  taxation  of 
business  on  the  basis  of  net  income  rests 
upon  the  very  real  complexity  involved  in 
its  computation.  It  is  unnecessary  to  di¬ 
late  upon  this  theme.  The  weakness  of 
the  net  income  tax  in  this  respect  has  not 
been  exaggerated.  And  complexity  is  a 
major  evil,  involving  the  taxpayer  in  a 
cloud  of  uncertainty,  stimulating  evasion 
and  rebellion,  clogging  the  administrative 
machine,  and  bringing  the  tax  into  dis¬ 
repute.” 

What  Does  History  Say? 

History  has  taught  all  governments  from 
the  time  of  the  tithes  (one-tenth)  of  Moses 
to  the  present  day  that  net  incomes  in 
times  of  peace  cannot  be  safely  taxed  more 
than  one-tenth  nor  gross  sales  more  than 
one-hundredth  of  their  respective  volumes, 
with  exception  of  pleasant  vices  like  liquors 
and  tobacco. 

No  legislation  should  attempt  to  obscure 
the  fundamental  distinction  between  a 
small  impersonal  tax  on  a  business  process 
(like  the  Commodity  Sales  Tax),  and  the 
graduated  personal  income  tax  on  the  to¬ 
tal  income  of  the  individual,  which  income 
ultimately  receives  all  the  dividends  and 
earnings  which  any  business  can  spare 
from  its  active  capital  and  necessary  re¬ 
serves,  and  thus  renders  unwise  any  other 


tax  on  business  than  the  commodity  sales 
tax. 


Professor  Seligman  closes  his  timely  eco¬ 
nomic  paper  with  the  following  hopeful 
remarks : 

“The  general  business  tax  that  has  been 
suggested  should  under  normal  circum¬ 
stances  provide  about  a  half-billion,  leaving 
approximately  one  billion  to  come  from 
the  personal  income  tax. 

“With  a  more  generalized  conception  of 
income,  so  as  to  include  dividends,  and 
with  a  change  in  the  awkward  situation 
which  permits  a  complete  deduction  for 
capital  losses,  while  making  incomplete 
provision  for  capital  gains,  we  can  look 
forward  to  a  personal  income  tax  with  con¬ 
siderably  reduced  surtax  rates  and  mod¬ 
erately  reduced  normal  rates.  And  if  it 
should  be  found  expedient  slightly  to  re¬ 
tard  the  tempo  of  debt  payment  in  order 
to  spread  over  a  somewhat  longer  period 
the  gigantic  burden  of  the  war,  it  would 
be  possible  still  further  to  lower  both  the 
surtax  and  the  normal  rates  of  the  income 
tax  or  to  go  somewhat  slower  in  the  sug¬ 
gested  increase  of  the  inheritance  tax. 

“Such  a  prospect  is  a  reasonably  cheer¬ 
ful  one.  It  implies  a  fiscal  system  which 
will  exert  little  repressive  influence  on  en¬ 
terprise,  which  will  put  no  burden  on  the 
consumption  of  necessaries  or  comforts, 
and  which  will  finally  respond  to  the  de¬ 
mands  of  democratic  justice  without  in¬ 
curring  the  hazards  of  administrative  ineffi¬ 
ciency. 

“With  a  stoppage  of  the  mad  race  for 
armaments,  with  a  more  successful  empha¬ 
sis  on  budgetary  economy,  and  with  a 
fuller  recognition  of  the  fundamental  prin¬ 
ciples  involved,  we  may  look  forward  with 
hopeful  anticipation  to  a  sound  and  sensi¬ 
ble  fiscal  system.” 


A  PLEA  FOR  PROSPERITY. 

An  address  delivered  by  Otto  H.  Kahn, 
February  3,  1922.  Published  by  The  Com¬ 
mittee  of  American  Business  Men,  354 
Fourth  Avenue,  New  York  City,  N.  Y. 

The  following  are  excerpts  from  this  in¬ 
teresting  paper: 

“The  underlying  trouble  with  our  whole 
scheme  of  taxation  is  that  it  is  based 
upon,  and  actuated  by,  not  plain  business 
like  consideration  of  revenue-raising,  but 
social  experimentation  plus  class  and  sec¬ 
tional  animosity. 

At  one  fell  swoop  our  system  of  taxation, 
such  as  has  been  in  force  practically  since 
the  beginning  of  the  Federal  Government, 
was  utterly  revolutionized.  Direct  taxa¬ 
tion  was  raised  suddenly  and  in  a  manner 


28 


unequalled  and  unprecedented  in  any  other 
country,  from  a  small  fraction  to  approx¬ 
imately  eighty  per  cent  of  our  total 
revenue.  It  was  a  measure  of  economic 
violence,  only  partly  justified  and  called  for 
by  the  exigencies  of  war,  and  was  bound 
to  lead  to  an  intensity  of  economic  trouble 
and  maladjustment  corresponding  to  the 
degree  of  its  violence. 

*  *  * 

At  any  rate,  the  innovation  of  1917  has 
now  had  a  trial  of  more  than  four  years. 
We  have  seen  the  theory  applied  in  prac¬ 
tice  for  a  length  of  time  amply  sufficient  to 
test  it  out.  The  result  is  writ  large  in  ef¬ 
fects  hampering  and  troubling  to  the  nation 
and  burdensome  to  all,  but  particularly  to 
those  who  were  intended  to  be  beneficiaries 
of  that  theory,  i.  e.,  the  plain  people!  It 
is  an  old  and  sad  truth  that  the  effect  of 
economic  blundering  by  governments  is 
always  felt  most  by  those  least  able  to 
protect  themselves.  You  cannot  “take  it 
out”  of  the  few  and  “out  of”  the  east  with¬ 
out  also  “taking  it  out  of”  the  poor  and 
“out  of”  the  west  and  south.  The  principles 
of  the  revenue  measure  of  1917,  re-en¬ 
acted  essentially  unchanged  for  1918  and 
1919,  and  not  modified  to  any  adequate  de¬ 
gree  in  the  measure  of  1921,  stand  disclosed 
as  breeders  of  harm  to  all  the  people  by 
the  inexorable  test  of  actual  experience. 

It  is  a  measure  unscientific,  inequitable 
in  its  operation,  cumbersome,  vexatious, 
and  intolerably  complex.  It  bears  the  iim 
print  of  class  and  sectional  discrimination. 
It  penalizes  thrift  and  industry,  but  leaves 
the  wastrel  and  shirker  untouched.  It  dis¬ 
courages,  disturbs,  and  impedes  business 
and  places  the  American  business  man  at 
a  disadvantage  as  against  his  European 
competitor  in  the  markets  of  the  world. 
It  tends  to  curtail  production,  it  halts  enter- 
prize,  it  diminishes  the  demand  for  labor,  it 
restrains  consumption,  it  makes  for  higher 
costs.  Its  effects  depress  agriculture.  It 
facilitates  governmental  extravagance.  It 
impairs  largely  the  incentive  to  effort  and 
to  self-denial  and  saving.  It  hampers  and 
intercepts  and  deflects  the  vitalizing  flow 
of  capital.  It  depletes  the  necessary  cash 
working  fund  of  industry  and  stands  in  the 
way  of  that  accumulation  of  new  capital 
which  is  indispensably  requisite  for  de¬ 
velopment.  It  has  shoved  a  clumsy  hand 
into  the  delicately  adjusted  organization  of 
our  commerce  and  industry.  In  short,  it  is 
bound  to  interfere,  has  interfered,  and  does 
interfere  gravely  and  in  many  ways,  direct 
and  indirect,  with  the  needs  and  the  at¬ 
tainments  and  the  prosperity  and  progress 
of  the  country. 

Facts  About  the  Sales  Tax. 

Without  adequately  organized  support, 
on  its  own  merits,  the  sales  tax  has 


become  a  centre  of  discussion.  While 
particularly  anathema  to  the  represen¬ 
tatives  of  labor  unions’  and  farmers’ 
organizations,  the  arguments  for,  and 
advantages  of,  the  sales  tax  have  come  to 
be  understood  and  appreciated  in  wide 
circles.  Newspapers  of  such  divergent 
tendencies  as  the  New  York  Times  and  the 
New  York  American  have  given  it  their 
adherence  and  support.  Every  recent  test 
has  shown  that  the  great  majority  of  the 
business  men  throughout  the  country — and 
I  do  not  mean  primarily  “big  business,” 
which  indeed  has  rather  been  hanging 
back,  but  the  rank  and  file — have  become 
converted  to  the  sales  tax  and  advocate  its 
adoption.  Personally,  I  have  no  doubt  that 
if  and  when  the  people  have  once  become 
acquainted  with  its  simplicity,  productivity, 
and  “painlessness,”  it  will  be  recognized 
for  what  it  is,  an  ideal  means  of  raising 
revenue,  and  will  become  a  permanent  fea¬ 
ture  of  our  fiscal  system. 

Exactly  what  shape  and  scope  a  sales 
tax  should  have,  has  been  a  matter  of  con¬ 
siderable  discussion  among  those  who 
favor  such  a  tax.  The  predominant  view, 
which  I  share,  is  that  it  should  not  be  a  tax 
on  retail  sales  only,  for  various  reasons, 
one  of  them  being  that  a  simple,  certain 
and  workable  definition  of  what  constitutes 
a  retail  sale,  defies  the  resources  of 
phraseology.  Personally,  after  much  re¬ 
flection  on  the  pros  and  cons  of  the  dif¬ 
ferent  forms  of  a  sales  tax,  I  am  in  accord 
with  what  I  believe  to  be  the  majority  of 
those  advocating  a  sales  tax,  in  favoring  a 
tax  (at  a  very  low  rate)  limited  to  com¬ 
modities  and  exempting  initial  sales  of 
farm  crops  and  live  stocks  and  further  ex¬ 
empting  such  turn-overs  as  aggregate  an¬ 
nually,  not  exceeding  six  thousand  dollars. 
(For  the  sake  of  simplicity  and  con¬ 
venience  certain  other  minor  exemptions 
at  the  last  stage  of  the  selling  process,  i.  e. 
selling  to  the  public,  might  be  found  ad¬ 
visable).  The  rate  of  the  tax  should  not 
be  above  one  per  cent;  I  should,  indeed, 
prefer  one-half  of  one  per  cent,  to  begin 
with. 

All  I  am  advocating  is  that  a  fair  trial  be 
given  to  the  principle  of  a  well-conceived 
sales  or  turn-over  tax,  so  as  to  test  it  in 
actual  practice. 

*  *  * 

Educational  Campaign  Needed. 

If  we  believe — as  I  most  earnestly  do — 
that  the  views  which  we  hold  on  the  sub¬ 
ject  of  taxation  and  other  economic  ques¬ 
tions,  are  more  nearly  right  and  their  carry¬ 
ing  into  effect  more  beneficial  to  the  coun¬ 
try  than  those  which  are  advocated  by 
others  and  some  of  which  have  found  ex- 


29 


pression  in  the  acts  of  Congress,  our  rem¬ 
edy  is  to  start  an  intensive  “campaign  of 
distribution”  of  these  views. 

Effective  distribution  is  one  of  the  secrets 
of  success.  Whether  it  be  items  of  in¬ 
formation,  ideas,  political  views,  inventions, 
or  whether  it  be  stocks  or  bonds  or  crops 
or  manufactured  articles,  their  value  only 
becomes  realized  when  they  are  distributed 
among  the  people. 

And  it  is  not  so  much  the  middle-man, 
i.  e.  the  politician,  whom  we  must  seek  to 
reach  and  convince,  though  his  co-opera¬ 
tion  is,  of  course,  greatly  to  be  desired,  as 
his  constitutents,  the  ultimate  consumers, 
i.  e.  the  people.  I  have  complete  faith  in 
the  sound  common  sense  and  the  right- 
mindedness  of  the  American  people.  When 
the  pros  and  cons  of  a  proposition  have 
been  set  before  them  fully  and  frankly, 
the  great  majority  of  the  plain  people  can 
be  trusted  to  form  right  conclusions  and  to 
reject  fallacies,  however  appealing  and 
plausible.  Too  often,  it  seems  to  me,  the 
integrity,  the  discernment,  and  the  es¬ 
sential  moderation  of  the  collective  mind 
of  the  people  is  underestimated  by  those  in 
political  life  or  seeking  to  enter  it.  I  have 
frequently  wondered  at  the  tendency  of  so 
many  politicians  to  seek  popular  favor  by 
flattery  and  pliancy  and  an  obsequious  “ear 
to  the  ground”  attitude,  when  all  ex¬ 
perience  has  shown  that  the  royal  road  to 
the  lasting  allegiance  of  the  people  leads 
along  the  heights  of  their  respect  and  con¬ 
fidence,  to  be  attained  by  independence, 
moral  courage,  intellectual  honesty,  and 
broad-gauged  performance. 

*  *  * 

Co-operation  Called  For. 

In  sounding  the  call  for  a  campaign  of 
distribution  of  views  which  we  believe  to 
be  sound  and  making  for  the  welfare  of 
the  country,  I  have  in  mind  not  merely  the 
problem  of  taxation,  important  though  it 
is,  but  matters  even  more  fundamental. 

In  order  to  accelerate  our  emergence 
int'o  the  light  of  prosperity,  the  order  of 
the  day  must  be  co-operation,  mutual  help¬ 
fulness,  and  respect  for  one  another’s  view¬ 
points  and  legitimate  claims.  Most  of 
the  proposals  of  the  leading  and  responsi¬ 
ble  spokesmen  of  the  farming  community, 
as  far  as  they  relate  to  securing  generally 
better  conditions  and  instrumentalities  for 
the  conduct  of  their  industry,  appear  to  me 
reasonable  and  justified  by  the  circum¬ 
stances,  as  I  understand  their  program  and 
their  problems. 

Let  Wall  Street  try  and  help  them  to  se¬ 
cure  such  conditions  and  put  its  business 
experience  at  their  disposal  to  solve  their 
problems.  On  the  other  hand,  let  us  point 
out  to  the  farmer  that  he  has  been  mis¬ 
informed  or  insufficiently  informed  in  cer¬ 


tain  matters  relating  to  business  and 
economics,  and  let  us  ask  him  and  his  lead¬ 
ers  to  reconsider  their  position  and  to 
cease  from  denying  to  us  needed  relief  and 
from  pursuing  policies  which  do  him  no 
good  and  do  us  harm,  and,  indeed  by  vir¬ 
tue  of  the  interdependence  of  all  sections 
and  callings,  do  him  harm  likewise. 

Let  us  give  enlightened  and  sympathetic 
thought  and  understanding  to  the  problems 
besetting  the  working  man.  I  know  it  will 
be  very  difficult  to  get  his  confidence,  but 
at  least  we  can  so  act  as  to  merit  it.  As 
employers  let  us  bear  in  mind  that  it  is  in 
our  best  interest,  even  from  the  merely 
selfish  point  of  view,  not  to  pay  the  lowest 
wages  to  which  labor  can  be  squeezed 
down,  but  rather  the  highest  wages  com¬ 
patible  with  the  successful  maintenance 
of  the  country’s  business  and  with  a  rea¬ 
sonable  level  of  prices  to  the  consumer. 

*  *  * 

Economic  Delusions  vs.  True  Remedies. 

We  must  not  put  our  heads  into  the 
sand  in  the  face  of  these  menacing  signs 
of  the  times,  nor  must  we  be  in  fear  of 
them,  or  permit  ourselves  to  be  unduly 
wrought  up.  We  cannot  meet  them  by 
blunt  denials  or  by  calling  hard  names. 
Social  and  political  economics,  the  func¬ 
tions  of  capital,  the  problems  of  trade,  and 
so  forth,  are  complex  and  difficult  subjects. 
They  lend  themselves  all  too  easily  to 
fallacies,  misinformation,  and  misinterpre¬ 
tation. 

It  is  one  of  the  proper  and  indeed  neces¬ 
sary  functions  of  organizations  of  business 
men  to  aid  in  spreading  true  information 
on  such  matters  among  the  people,  to  give 
facts  and  figures  and  reasons,  to  justify 
and  explain,  and  to  meet  destructive  agita¬ 
tion,  whether  of  the  scheming  demagogue 
or  the  well-meaning  Utopianist,  on  its  own 
ground  of  propaganda.  We  must  seek  to 
counteract  false  or  irresponsible  or  ignor¬ 
ant  assertion  with  plain,  patient,  and  truth¬ 
ful  explanation,  but  we  must  be  sure  to 
keep  our  own  minds  open  to  the  merit  of 
new  ideas,  we  must  be  ready  to  welcome 
progress,  we  must  do  our  share,  in  good 
faith  and  willingly,  to  redress  grievances 
and  to  aid  in  bringing  about  the  greatest 
attainable  degree  of  well-being  for  all  the 
people. 

If  we  fail  to  play  our  part  in  contending 
for  the  right,  we  have  no  just  title  to  com¬ 
plain  if  things  go  wrong. 

Just  as  the  price  of  Liberty  is  eternal 
vigilance,  so  eternal  effort  in  resisting  er¬ 
ror,  in  striving  for  genuine  progress,  and  in 
spreading  and  defending  the  immutable 
principles  and  doctrines  of  truth  and  rea¬ 
son,  is  the  price  of  good  government  in  a 
democracy.” 


30 


THE  SOVEREIGN  TOUCH 

In  the  good  old  days  the  king’s  touch 
was  deemed  curative  magic.  Lacking  a 
king,  we  can  no  longer  exercise  this  pleas¬ 
ing  belief.  The  only  sovereign  touch  we 
know  is  one  most  damaging  to  the  pocket- 
book.  This  modern  government’s  touch  is 
a  sorry  substitute  for  that  of  the  ancient 
kings.  Instead  of  curing  scrofula,  it 
causes  industrial  paralysis. 

Slackening  production  means  idleness. 
There  will  be  no  production  without  profits 
and  there  can  be  no  profits  without  an 
adequate  market.  The  intermediate  asser¬ 
tion,  proof  of  which  links  together  these 
assumptions,  is  that  taxes  decrease  net 
profits,  and,  so,  purchasing  power. 

Capital  Essential  to  Industry. 

Capital  is  essential  to  industry,  and  the 
contribution  thus  squeezed  out  of  the  capi¬ 
talists  is  socially  important  because  it  dis¬ 
courages  them  from  joining  industrial  ven¬ 
tures.  Suppose  Smith  lent  money  to 
Jones,  and  made  Jones  give  him  a  promis¬ 
sory  note  empowering  its  holder  to  in¬ 
crease  the  interest  rate  at  pleasure.  Jones 
would  naturally  be  very  reluctant  to  tie 
up  the  borrowed  money  in  any  long  time 
investment.  Here  is  a  fair  parallel  for  the 
situation  of  the  capitalist.  He  does  not 
really  own  his  property.  His  commercial 
investments  are  all  subject  to  the  govern¬ 
ment’s  overriding  power  of  taxation.  He 
cannot  put  out  money  for  even  a  single 
year  with  full  confidence  as  to  the  net  re^ 
turn. 

In  1917,  under  stress  of  war  conditions, 
federal  normal  income  tax  was  retroactive¬ 
ly  doubled  and  surtaxes  retroactively  mul¬ 
tiplied.  At  this  very  moment  Congress  is 
rather  desperately  casting  about  for  sup¬ 
plemental  levies  to  balance  a  current  defi¬ 
cit  much  larger  than  the  general  public  re¬ 
alizes.  Every  tax  is  both  an  expense  and 
a  threat.  Exempt  government  bonds  have 
become  a  popular  investment.  The  only 
industries  able  to  obtain  adequate  financ¬ 
ing  are  those  holding  out  the  assurance  of 
high  returns. 

But  rising  taxes  constantly  narrow  the 
group  of  industries  which  can  hold  out 
such  an  assurance,  much  as  a  rising  tide 
cuts  down  the  unsubmerged  area  of  an 
island.  The  ready  market  which  supports 
production  is  found  only  so  long  as  the 
standard  of  living  is  held  steady  or  moved 
upward.  The  rich  and  the  great  have  lit¬ 
tle  to  do  with  setting  this  standard.  Their 
consumption  and  even  their  waste  is  a 
small  factor.  The  purchasing  power  of  the 


millions  who  must  depend  upon  their 
hands  for  livelihood  is  what  tells  the  story. 
These  people  have  no  great  accumulations 
of  wealth  to  tide  them  over  bad  times. 
Let  taxation  directly  or  indirectly  take 
even  a  small  sum  away  from  each  of  them 
and  their  purchasing  power  will  shrink 
forthwith.  And  it  has  been  proved  time 
and  again  that  taxes  are  ultimately  ex¬ 
tracted  from  this  large  class  of  the  popu¬ 
lation. 

Taxation  Wedges  Apart  the  Producer  and 
Consumer. 

Thus  taxation  wedges  apart  the  produc¬ 
er  and  the  consumer,  forcing  both  away 
from  their  former  point  of  contact.  As 
taxes  rise,  producers  demand  progressive¬ 
ly  enlarging  returns,  and  the  mass  of  con¬ 
sumers  become  progressively  less  able  to 
give  any  return  at  all.  Unemployment 
follows,  helps  to  cut  profits  still  further, 
and  breeds  increased  unemployment. 

The  dark  picture  might,  of  course,  be 
brightened  if  governments  turned  back  to 
their  citizens  anything  like  a  dollar’s  worth 
of  goods  or  service  for  each  dollar  brought 
in  by  the  tax  collector.  Vain  wish!  With¬ 
out  attempting  an  elaborate  analysis,  it  is 
safe  to  say  two  things: 

First,  the  fundamental  government  func¬ 
tions  of  protecting  us  against  foreign  foes 
and  keeping  us  from  cheating,  fighting  and 
murdering  one  another,  while  plainly  nec¬ 
essary,  make  no  pretense  of  being  produc¬ 
tive.  Many  of  their  modern  elaborations 
distinctly  cramp,  production. 

Second,  where  a  government  does  dab¬ 
ble  in  industry,  it  obtains  smaller  results 
from  larger  expenditures  than  any  private 
concern  on  earth.  The  surest  way  to  get 
poor  quickly  is  to  let  the  state  do  your 
work.  For  an  extreme  example,  look  at 
Russia. 

This  is  all  trite  enough.  When  Chief 
Justice  Marshall  more  than  a  century  ago 
built  one  of  his  greatest  opinions  around 
the  statement  that  “the  power  to  tax  in¬ 
volves  the  power  to  destroy,”  he  was  crys¬ 
tallizing  in  an  unforgettable  phrase  the 
common  knowledge  that  taxes  might  crush 
industry,  employment,  prosperity,  the  very 
government  itself.  The  same  is  true  to¬ 
day.  The  “government’s  touch”  is  no  light 
affliction  at  best.  For  the  sake  of  general 
welfare,  every  effort  should  be  made  to 
keep  it  from  becoming  more  grievous. 

JOHN  M.  MAGUIRE. 
Boston  Herald,  April  19,  1922. 


31 


ECONOMIC  AXIOMS 

In  Emerson’s  essay  on  Wealth,  econom¬ 
ic  truths  appear  like  axioms,  indisputable 
to  any  man  or  woman  or  common  sense. 
It  is  easy  to  comprehend  why  the  business 
men  of  this  country,  who  w'ell  know  that 
they  must  be  practical  economists  or  fail 
in  business,  are  supporters  of  a  simple 
“Sales  tax  and  no  other  tax  on  business.” 
The  great  majority  of  these  business  men, 
from  the  producing  farmer  to  the  distribut¬ 
ing  retailer  know  that  they  must  depend 
upon  the  satisfaction  of  their  customers. 

At  the  last  election  they  demanded  that 
the  nation’s  business,  the  largest  in  the 
world,  with  a  debt  of  $24,000,000,000,  should 
be  run,  in  future,  on  sound  business  prin¬ 
ciples,  both  as  to  taxation  and  expendi¬ 
tures.  Party  politicians  and  demagogues 
can  gain  no  advantage  by  mis-stating  facts 
or  principles  any  longer. 


Emerson  says: 

“The  right  merchant  is  the  one  who  has 
just  the  average  faculties  we  call  com¬ 
mon-sense;  a  man  of  strong  affinity  for 
facts,  who  makes  up  his  decision  on  what 
he  has  seen.  He  is  thoroughly  persuaded 
of  the  truths  of  arithmetic.”  *  *  * 


“There  is  always  a  reason,  in  the  man, 
for  his  good  or  bad  fortune,  and  so  in  mak¬ 
ing  money.  He  knows  that  all  goes  on  the 
old  road,  pound  for  pound,  cent  for  cent — 
for  every  effect  a  perfect  cause — that  good 
luck  is  another  name  for  tenacity  of  pur¬ 
pose.  He  insures  himself  in  every  transac¬ 
tion,  and  likes  small  and  sure  gains.  Prob¬ 
ity  and  closeness  to  the  facts  are  the 
basis  *  *  *” 


“Political  Economy  is  as  good  a  book 
wherein  to  read  the  life  of  man  and  the 
ascendancy  of  laws  over  all  private  and 
hostile  influences,  as  any  Bible  which  has 
come  down  to  us.  *  *  *” 


“Wealth  brings  with  it  its  own  checks 
and  balances.  The  basis  of  political  econ¬ 
omy  is  non-interference.  The  only  safe 
rule  is  found  in  the  self-adjusting  meter 
of  demand  and  supply.  Do  not  legislate. 
Meddle,  and  you  snap  the  sinews  with  your 
sumptuary  laws.  Give  no  bounties.  *  *  * 


Make  equal  laws,  secure  life  and  prop¬ 
erty  and  you  need  not  give  alms.  Open 
the  doors  of  opportunity  to  talent  and  vir¬ 
tue  and  they  will  do  themselves  justice 
and  property  will  not  be  in  bad  hands.  In 
a  free  and  just  commonwealth,  property 
rushes  from  the  idle  and  the  imbecile  to 
the  industrious,  brave,  and  persevering.” 
*  *  * 


“The  level  of  the  sea  is  not  more  surely 
kept  than  is  the  'equilibrium  of  value  in 
society  by  the  demand  and  supply,  and 
artifice  or  legislation  punishes  itself  by  re¬ 
actions,  gluts,  and  bankruptcies.”  *  *  * 


Since  this  essay  was  written  the  im¬ 
provement  in  farming  machinery  has  in¬ 
creased  the  efficiency  of  one  man’s  skilled 
labor  to  that  of  fifty  men  in  Emerson’s 
time,  and  required  large  farming  invest¬ 
ments  of  capital  in  land  and  equipment. 
As  a  class,  the  farmer  is  now  the  chief 
capitalist  of  America. 


The  American  Farmer  today  is  not  a 
mere  laborer — he  is  a  capitalist  and  em¬ 
ployer  of  skilled  labor  and  teacher  of  un¬ 
skilled  labor,  and  a  worthy  successor  to 
Washington,  the  skilled  farmer  of  his  day, 
who  was  likewise,  naturally,  economist 
and  statesman. 


Mr.  Hoover  stated  in  February,  1921 : 
“The  investment  of  capital  in  reproductive 
works  is  the  most  beneficial  operation 
known  to  humanity.  Export  surplus  can 
be  reinvested  in  productive  enterprise  out¬ 
side  our  borders.” 

HIGHEST  WAGES  IN  THE  WORLD 

“American  industry  has  always  paid  the 
highest  wages  of  any  country  in  the  world, 
and  in  the  past  has  still  been  fairly  suc¬ 
cessful  in  world  trade.  The  reason  is  that 
its  industry  produces  more  per  man  than 
that  of  any  other  country.  The  American 
workman  produces  more,  simply  because 
of  more  horsepower  behind  him.  In  Eng¬ 
land,  for  example,  the  average  is  one  and 
one-half  horsepower  per  worker.  In  this 
country,  fifteen  years  ago,  the  average  was 
two  and  one-half  horsepower  per  industrial 
worker,  and  now  it  is  three  and  one-half 
per  man.  From  this  comparison  with  one 
of  the  most  forward  of  European  manufac¬ 
turing  countries  it  is  easy  to .  see  how 
American  industry  can  compete  with  the 
cheaper  labor  of  Europe. 

The  quick  recovery  of  this  nation  from 
present  economic  conditions  is  within  the 
power  of  the  American  Farmers,  and  they 
will  heed  the  object  lesson  of  Soviet  Rus¬ 
sia  and  the  consequences  of  delay. 

They  will  instruct  their  representatives 
in  Washington  to  speedily  repeal  all  tax 
laws  that  now  obstruct  business,  and  con¬ 
stitute  23  per  cent  of  the  present  tax  cost 
and  price  to  the  consumer. 

Make  the  small  1  per  cent  sales  tax  uni¬ 
versal  with  no  class  exemptions  except  o£ 
$6,000  per  annum  to  the  small  dealer  and 


32 


farmer  alike.  Then  watch  the  country 
grow  in  wealth  and  prosperity. 


TAX  EXEMPT  BONDS. 

Q.  Do  Taxation  Authorities  favor  the 
principle  of  Tax  exempt  bonds  in  consider¬ 
ing  Income  Tax? 

A.  They  do  not.  Professor  Bullock 
stated  at  the  National  Tax  Association 
(1917)  conference,  page  152  of  Proceed¬ 
ings:  “It  would  have  been  very  fortunate 
last  spring  if  our  government  had  seen  its 
way  clear  to  issue  bonds  subject  to  taxa¬ 
tion,  enjoying  no  exemption  of  any  descrip¬ 
tion  whatsoever,  and  had  then  been  willing 
to  go  into  the  market  and  pay  the  cur¬ 
rent  rate  of  interest.  It  would  actually 
have  meant  money  in  the  treasury  in  the 
long  run.  And  it  would  also  have  avoided 
the  unfortunate  result  of  creating  in  the 
community  a  class  of  people  who,  in  ac¬ 
cordance  with  the  terms  of  their  contract 
made  with  the  government,  are  exempted 
from  ordinary  taxation.  Just  at  present 
this  difficulty  does  not  impress  us  as  very 
important.  It  seems  more  important  to 
get  the  bonds  sold,  and  it  seems  not  to 
matter  so  much  how  they  are  marketed. 
But  after  the  war  if  any  politician,  seeking 
to  array  one  class  against  another  class, 
points  out  that  there  are  in  the  community 
millionaire  bond  holders  who  are  exempt 
from  the  income  tax,  you  want  to  remem¬ 
ber  that  Uncle  Samuel  is  responsible  and 
that  the  millionaire  bond  holders  are  not 
to  blame.  They  merely  took  the  govern¬ 
ment  at  its  own  terms;  and  the  mistake 
which  the  government  made  was  trying  to 
place  its  bonds  at  a  lower  rate  of  inter¬ 
est  than  it  ought  to  have  paid.  It  would 
have  been  vastly  better  to  have  issued  a 

5  per  cent  bond  without  any  exemption 
from  taxation;  and  if  that  bond  did  not  go, 
it  would  have  been  better  to  make  the  rate 

6  per  cent.  *  *  *  The  important  thing  is 
to  offer  a  rate  that  shall  not  create  exemp¬ 
tion  from  taxation,  that  shall  in  spite  of 
the  fact  that  the  bonds  are  taxable  carry 
them  off  the  market;  and  then,  having 
done  that,  reserve  to  the  government  the 
right  to  begin  the  redemption  of  those 
bonds  within  a  short  period  after  the  close 
of  the  war,  when,  the  government’s  circum¬ 
stances  having  improved  and  its  credit  be¬ 
ing  better  than  it  can  be  in  time  of  such 
emergency,  it  is  fair  to  presume  that  it 
can  then  replace  war  bonds  by  others  run¬ 
ning  for  a  longer  period  and  bearing  a 
lower  rate  of  interest.” 

At  the  Thirteenth  Annual  Conference  of 
the  National  Tax  Association  in' 1920,  the 


following  resolutions  were  adopted  by  a 
practically  unanimous  vote: 

“Resolved,  That  this  conference  is  of  the 
opinion  that  serious  consideration  should 
be  given  to  devising  some  substitute  for 
the  present  federal  excess  profits  tax  and 
securing  the  greatest  practicable  simplic¬ 
ity  in  matters  of  administration  of  federal 
taxes. 

“Resolved,  That  this  conference  is  of  the 
opinion  that  exemptions  of  private  proper¬ 
ty  or  income  from  taxation  should  be  con¬ 
fined  within  the  narrowest  possible  limits.” 

Q.  Why  was  Brofessor  Bullock’s  advice 
disregarded  in  1917? 

A.  The  enormous  war  demands  of  the 
government  for  money  were  supplied  un¬ 
der  pressure,  in  the  United  States,  regard¬ 
less  of  economic  principles  and  equality  of 
taxation.  Such  hasty  legislation  has  re¬ 
sulted  in  the  present  serious  checks  to  en¬ 
terprise  by  obstacles  which  Trade  and 
Commerce  cannot  overcome — obstacles 
which  must  not  be  permitted  to  become 
permanent. 

It  is  very  clear  to  business  men,  who 
create  and  determine  values  and  who  must 
be  practical  economists  or  fail  in  business, 
that  all  property  must  be  protected  by 
Government  and  should  pay  taxes  in  sup¬ 
port  of  a  good  or  better  government,  as 
follows: 

1.  A  moderate  judicious  tax  on  all  per¬ 
sonal  individual  incomes  exceeding  a  mod¬ 
erate  exemption  to  all  alike. 

2.  A  tax  on  all  gross  sales  of  not  exceed¬ 
ing  1  per  cent,  with  no  exemptions  what¬ 
ever  of  any  class  of  sales  except  to  an 
amount  not  exceeding  $6,000  to  all  alike 
out  of  annual  sales.  This  will  assist  small 
dealers  and  farmers  and  encourage  thrift 
and  enterprise  among  business  beginners 
in  their  struggle  with  competition.  Be¬ 
sides  this  Sales  Tax  there  should  be  no 
other  tax  on  business. 

The  correct  valuation  of  property  is  its 
equivalent  cash  value  at  the  time  of  sale, 
when  both  buyer  and  seller  determine  that 
it  is  for  the  best  interests  of  each  that 
such  sale  be  made.  This  almost  negligible 
1  per  cent  tax  may  indeed  be  considered 
as  an  insurance  premium  for  the  continued 
value  of  the  property  by  the  continuance 
of  the  stable  government  without  which 
property  values  would  quickly  disappear, 
and  all  sales  wTould  cease. 


33 


BASIC  PRINCIPLES  OF  SALES  TAX 

Every  business  man  will  welcome,  as  a 
substitute  for  the  present  unequal  and 
complicated  patch-work  of  tax  legislation, 
a  uniform  1  per  cent  rate  of  sales  tax  TO 
ALL  COMPETITORS  ALIKE  on  a  prop¬ 
erty  valuation  determined  by  buyer  and 
seller  at  time  of  sale,  making  a  small  tax 
on  each  individual  business  and  individual 
consumption,  with  no  exemptions  to  any 
competitor  greater  than  $6,000  of  annual 
sales.  This  ensures  compliance  with  the 
basic  economic  principles  of  Universality, 
Equality  of  Taxation  and  Ability  to  Pay,  as 
laid  down  by  Adam  Smith  and  John  Stuart 
Mill  and  accepted  by  all  subsequent  Taxa¬ 
tion  authorities,  thus  securing  also  Sim¬ 
plicity,  Collectibility,  Moderation  and  Per¬ 
manence. 

Q.  What  are  some  other  basic  prin¬ 
ciples  of  taxation  which  are  closely  obeyed 
in  the  proposed  plan  of  sales  tax  at  1  per 
cent,  but  which  were  disregarded  in  the 
present  Federal  Tax  Laws  and  which  were 
followed  by  the  present  business  depres¬ 
sion  as  effect  follows  cause? 

A.  Mill  states,  book  5,  page  395:  “The 
tax  which  each  individual  is  bound  to  pay 
ought  to  be  certain  and  not  arbitrary.  The 
time  of  payment,  the  manner  of  payment, 
and  the  quantity  to  be  paid  ought  to  all  be 
clear  and  plain  to  the  contributor  and  to 
every  other  person. 

“Every  tax  ought  to  be  levied  at  the 
time  or  in  the  manner  in  which  it  is  most 
likely  to  be  convenient  for  the  contributor 
to  pay  it. 

“Taxes  upon  consumable  goods  are  all 
finally  paid  by  the  consumer  and  generally 
in  a  manner  that  is  very  convenient  for 
him.  He  pays  for  them  by  little  and  little 
as  he  has  occasion  to  buy  the  goods,  as  he 
is  at  liberty  to  buy  or  not  to  buy  as  he 
pleases.  It  will  be  his  own  fault  if  he  ever 
suffers  any  considerable  inconvenience 
from  such  taxes. 

“Every  tax  ought  to  be  so  contrived  as 
both  to  take  and  to  keep  out  of  the  pockets 
of  people  as  little  as  possible  over  and 
above  what  it  brings  into  the  public  treas¬ 
ury  of  the  state.” 

Page  397:  “He  who  has  twice  as  much 
property  to  be  protected  receives  on  an  ac¬ 
curate  calculation  twice  as  much  protec¬ 
tion,  and  ought  on  the  principle  of  bar¬ 
gain  and  sale  to  pay  twice  as  much  for  it.” 

Mill  states  on  page  416:  “Over  taxation 
carried  to  a  sufficient  extent  is  quite  cap¬ 
able  of  ruining  the  most  industrious  com¬ 


munity,  especially  when  it  is  in  any  degree 
arbitrary,  so  that  the  payer  is  never  cer¬ 
tain  how  much  or  how  little  he  should  be 
allowed  to  keep,  or  when  it  is  so  laid  on  as 
to  render  industry  and  economy  a  bad  cal¬ 
culation.” 

On  page  419,  Mill  states:  “A  peculiar 
taxation  on  the  income  of  any  class  not 
balanced  by  taxes  on  other  classes  is  a 
violation  of  justice  and  amounts  to  a  par¬ 
tial  confiscation.”  *  *  * 

On  page  492  Mill  deprecates  over-taxa¬ 
tion  as  follows:  “Yet,  mere  excess  of  tax¬ 
ation,  even  when  not  aggravated  by  uncer¬ 
tainty  is,  independently  of  its  injustice,  a 
serious  economical  evil.  It  may  be  carried 
so  far  as  to  discourage  industry  by  in¬ 
sufficiency  of  reward.  Very  long  before  it 
reaches  this  point  it  prevents  or  greatly 
checks  accumulation  or  causes  the  capital 
accumulated  to  be  sent  for  investment  to 
foreign  countries.”  *  *  * 

On  page  488  of  Walker’s  Political  Econ¬ 
omy  it  is  stated  of  the  best  tax  system: 
“How  far  it  secures  to  the  state  the  needed 
revenue  with  a  minimum  of  irritation  to 
the  public  mind  with  a  minimum  of  ex¬ 
pense  and  loss  of  collection,  and  with  a 
minimum  disturbance  to  trade  and  indus¬ 
try.”  *  *  * 

On  page  502  he  quotes  Mr.  McCulloch’s 
Purely  Economic  Theory  of  Taxation: 
“The  distinguishing  feature  of  the  best  tax 
is  not  that  it  is  most  nearly  proportioned 
to  the  means  of  individuals,  but  that  it  is 
easily  assessed  and  collected,  and  is  at  the 
same  time  most  conducive  to  the  public  in¬ 
terests,”  *  *  *  “collecting  the  revenue 
for  the  service  by  the  most  convenient, 
simple,  and  inexpensive  means.  By  under¬ 
taking  to  effect  an  equitable  apportionment 
of  the  burden  through  conflicting  methods 
or  by  personal  assessment  you  are  not 
only  likely  to  fail,  you  are  certain  at  the 
best  to  add  to  the  aggregate  cost  of  the 
service  and  are  in  great  danger  of  gener¬ 
ating  new  and  distinct  evils  by  disturbing 
economic  relations  and  obstructing  the 
process  of  production  and  exchange.” 

Q.  How  do  taxes  tend  to  diffusion? 

A.  Walker  states:  “Taxes  uniformly 
advanced  on  all  like  competing  proper¬ 
ties,”  says  Mr.  Wells,  “will  always  tend 
to  equate  themselves  and  will  never  be  a 
special  burden  to  those  who  originally 
made  the  advances  to  the  government.” 
*  *  *  “It  rests  upon  the  assumption  of 
perfect  competition.  It  is  true  to  the  full 
extent  only  under  conditions  which  secure 
the  complete  mobility  of  all  economic 
agents.”  * 


34 


Money  in  his  “Recollections,”  quotes 
Cobden  as  follows:  “The  base  of  your 
state,”  he  urged,  “in  season  and  out  of 
season,  is  economic;  all  depends  on  the 
soundness  of  national  wealth.  It  is  pos¬ 
sible  to  be  an  economist  without  being  a 
statesman,  but  you  cannot  be  a  statesman 
without  being  an  economist.” 

“WHEN  THE  MANUFACTURER  SELLS.” 

In  a  discussion  on  Sales  Tax  between 
Mr.  Fayette  R.  Plumb,  wholesale  tool 
manufacturer,  and  Mr.  B.  S.  Orcutt,  editor 
and  economist,  the  latter  said  in  part: 

“When  Mr.  Plumb  comes  to  sell,  he  has 
added  labor  and  overhead  costs  to  the 
cost  of  materials,  so  that  his  selling  price 
is  necessarily  larger  (whether  he  sells  at 
a  profit  or  not)  than  his  material  cost  on 
which  he  paid  1  per  cent.  Plence,  when  he 
collects  1  per  cent  on  this  sale  price,  and 
every  other  competitor  has  to  collect  1  per 
cent  on  sale  price,  the  situation  is  exactly 
the  same,  so  far  as  profit  or  loss  is  con¬ 
cerned,  as  if  the  tax  stopped  with  the  in¬ 
itial  step  in  the  chain  and  the  only  con¬ 
sumers  were  the  tool  manufacturers. 

“It  is  an  axiom  in  mathematics  that  if 
equals  are  added  to  equals  the  results  are 
equal.  If  the  only  consumption  tax  in  the 
world  were  a  tax  of  1  per  cent  on  the  mate¬ 
rials  purchased  by  a  tool  manufacturer,  the 
result  to  all  tool  manufacturers  would  be 
equal,  just  as  the  tax  of  one  cent  on  a  ten 
cent  ice  cream  soda  is  equal  to  all  pur¬ 
chasers  thereof. 

Equals  Added  to  Unequals. 

“It  is  also  true  that  if  equals  are  added 
to  unequals,  the  inequalities  remain  the 
same.  If  you  spread  a  thin  coat  of  paint 
over  an  unequal  surface,  the  inequalities 
of  the  surface  are  not  affected.  If  the  cost 
of  Mr.  Plumb’s  materials  is  less  than  the 
cost  of  the  same  materials  to  hiso  competi¬ 
tors,  the  addition  of  a  1  per  cent  tax  in 
both  cases  does  not  change  Mr.  Plumb’s 
relative  advantage.  If  Mr.  Plumb’s  labor 
and  administration  are  more  efficient  than 
his  competitor’s,  his  advantage  is  in¬ 
creased,  but  it  is  not  the  1  per  cent  tax 
that  enables  him  to  undersell  that  com¬ 
petitor.  They  are  on  exact  equality  with 
the  respect  to  the  tax.  They  are  also  on 
equality  in  being  compelled  to  add  1  per 
cent  to  the  bill  when  the  articles  are  sold. 

“If  the  customers  insist  on  an  increase 
in  the  cash  discount,  that  discount  comes 
out  of  the  price  agreed  on  before  the  tax 
is  collected,  and  has  nothing  to  do  with 
the  tax. 


“Another  axiom  in  mathematics  is  that 
if  equals  are  multiplied  by  equals,  the  re¬ 
sults  are  equal.  No  matter  how  many 
steps  are  involved  in  the  tax  levy,  they  are 
merely  multiplication  of  the  single  step 
already  described,  and  cannot  produce  in¬ 
equality  on  an  equal  number  of  steps. 

“It  does  not  follow,  however,  as  many 
opponents  of  the  tax  seem  to  think,  that 
if  there  are  ten  steps,  and  1  per  cent  tax  is 
levied  at  each  step,  the  result  will  be  a 
10  per  cent  tax  on  consumers’  price.  In 
the  initial  stages  cost  of  raw  material  is 
comparatively  small,  and  the  1  per  cent 
is  small.  As  labor  and  transportation  and 
overhead  costs  are  added,  the  basis  of  the 
tax  grows,  and  the  tax  grows  in  proportion. 
The  net  result  is  an  average  of  about  3 
per  cent  final  tax  on  the  retail  price  to 
the  eventual  consumer. 

“And  neither  does  it  follow  that  Mr. 
Plumb  would  not  pay  any  tax  on  his  prof¬ 
its.  It  merely  follows  that  his  customers 
would  know  just  what  tax  he  collected 
from  them  as  a  Government  agent;  and 
that  he  paid  it  all  over  to  the  Government. 
Therefore,  it  did  not  affect  his  profits  or 
his  loss — having  nothing  to  do  with  them. 
It  is  nowhere  proposed  to  stop  taxing  Mr. 
Plumb  on  his  profits  or  to  penalize  him  if 
he  sells  at  a  loss.  Having  paid  a  1  per 
cent  tax  on  his  purchases,  as  did  everyone 
of  his  competitors,  his  profit  or  loss  de¬ 
pends  entirely  on  his  skill  or  luck  in  buy¬ 
ing,  manufacture  and  sale,  just  as  if  there 
had  been  no  1  per  cent  tax  when  he  bought 
his  raw  material  and  no  obligation  to  act 
as  a  Government  tax  collector  when  he 
sold. 

“The  question  of  income  taxes,  corporate 
or  individual,  would  remain  the  same  if  no 
overturn  tax  existed.  Adjustment  of  these 
taxes  is  a  problem  by  itself.  The  druggist 
who  handles  scores  of  intricate  special 
taxes  at  great  expense  and  trouble  to  him¬ 
self  has  to  pay  an  income  tax  after  all  the 
other  work  has  been  done.  He  would  still- 
have  to  pay  an  income  tax  were  his  work 
simplified  by  the  institution  of  a  simple 
general  sales  tax  in  place  of  complicated 
special  sales  taxes.  This  is  really  all 
there  is  to  the  sales  tax  controversy.” 


POLITICIANS  ARE  A  NECESSARY  EVIL. 

Politicians  are  a  necessary  evil,  from 
some  points  of  view,  but  their  name  begs 
the  question.  They  acquired  a  bad  name 
in  this  country  during  the  reconstruction 
period  following  the  Civil  War  which  they 
liave  to  such  an  extent  failed  to  live  down 


35 


that  we  define  a  statesman  as  a  dead 
politician.  But  the  politician  has  himself 
to  thank.  He  cannot  see  beyond  the  end 
of  his  nose.  His  measure  of  a  good  tax  is 
one  which  will  not  directly  affect  the  vot¬ 
ers  in  his  own  district,  or  one  whose  bur¬ 
den  they  cannot  trace. 

His  objections  to  a  sales  tax — more  cor¬ 
rectly  called  a  turnover  tax — are  based 
upon  the  ability  of  the  voter  to  estimate 
his  own  burden.  The  voters’  burden  from 
the  excess  profits  tax  was  much  heavier 
(while  there  were  any  excess  profits)  than 
it  would  be  under  a  turnover  tax;  but  it 
was  possible  to  hypnotize  him  into  believ¬ 
ing  that  the  rich  man  paid  the  tax.  The 
proposed  sales  tax  is  not  an  additional 
burden  but  a  direct  method  of  raising  rev¬ 
enue.  It  is  not  a  tax  shifted  from  the 
shoulders  of  the  rich  to  the  shoulders  of 
the  poor.  It  is  one  where  the  most  lavish 
spender  pays  the  highest  tax.  What  could 
be  more  democratic? 

The  man  who  lives  within  his  means  of 
$2,000  a  year  contributes  $20  on  a  1  per 
cent  tax,  the  limit  suggested.  The  rich 
man  with  a  town  house,  two  country 
houses  and  a  yacht  pays  in  taxes,  not  the 
little  man’s  $20,  but  twenty  or  fifty  times 
as  much.  The  mischief  of  all  our  taxes 
has  been  that  every  economy  of  the  man  of 
moderate  means,  so  far,  has  gone  into  the 
basket  of  the  tax  gatherer,  while  the  rich 
man  has  passed  on  the  excess  profits  tax 
and  put  his  excess  profits  into  non-taxable 
securities. 


TAXING  THE  PAYROLL. 

In  practice,  says  the  Wall  Street  Jour¬ 
nal,  there  is  no  way  of  taxing  capital  with¬ 
out  taxing  the  payroll,  which  is  in  fact  the 
sole  immediate  source  of  Federal  cash 
revenue,  outside  of  loans,  which  are  them¬ 
selves  a  direct  appropriation  of  cash  capi 
tal. 

The  excess  profits  tax  was  popular  be¬ 
cause  it  was  acclaimed  (in  an  emergency 
which  alone  excused  it)  as  an  invention  at 
last  transferring  the  burden  from  consump¬ 
tion  to  capital.  But  it  was  paid  out  of  the 
payroll  through  an  inescapable  accumula¬ 
tion  of  intermediate  charges.  It  was  even 
necessary  to  create  an  excess  profit  before 
it  could  be  taxed,  where  none  had  existed 
before. 

Of  the  $4,500,000,000  estimated  Federal 
expenditure  in  the  coming  year  every  dol¬ 
lar  will  be  a  burden  on  the  payroll.  Even 
that  part  of  it,  large  as  it  will  be,  coming 
from  investments,  and  other  theoretical 


forms  of  capital,  will  be  a  burden  on  the 
payroll.  As  it  is  taken  from  the  investor, 
whether  an  active  business  man,  a  de¬ 
pendent  or  a  mere  idler,  it  will  curtail  his 
buying  power  and,  worse  for  the  worker, 
his  investment  power.  It  will  not  for  some 
time  furnish  funds  loanable  weekly  or 
monthly  to  make  up  the  payroll. 

There  will  remain  differences  of  opinion 
as  to  forms  of  taxation,  but  there  should 
be  no  real  clash  betwen  capital  and  labor 
over  taxation.  The  energy  stored  in  a  dol¬ 
lar  to  the  credit  of  the  manufacturer  can 
only  be  available  for  payment  to  the  Gov¬ 
ernment  through  the  energy  of  the  worker. 

No  system  of  taxes  can  be  invented 
which  will  materially  diminish  the  weight 
of  taxation  on  industry.  It  is  a  weight 
which  can  be  lightened  only  by  distribu¬ 
tion,  through  intensified  and  broadened 
production. 

READJUSTMENT  OF  FEDERAL 
TAXATION 

Prof.  Chas.  J.  Bullock  states,  in  his  re¬ 
view  of  the  first  quarter  of  1921: 

Another  domestic  problem  which  presses 
for  settlement  is  the  readjustment  of  fed¬ 
eral  taxation  to  conditions  of  peace.  In 
order  to  meet  a  great  emergency  the  gov¬ 
ernment  has  been  imposing  upon  large  in¬ 
comes  and  corporation  profits,  taxes  of  un¬ 
precedented  magnitude  which  were  levied 
on  the  theory  that  wealth  should  pay  the 
greater  part  of  the  expenses  of  the  war. 
Assuming  for  present  purposes  that  this 
theory  was  sound  and  that  during  the 
emergency  these  taxes  had  the  intended 
effect,  it  has  become  evident  that  things 
are  not  now  working  out  in  the  manner  de¬ 
sired  and  that  immediate  changes  are  im¬ 
peratively  demanded  in  the  interest  of  all 
concerned.  Whether  we  consider  their  ef¬ 
fect  upon  business  or  upon  investments,  it 
is  clear  4hat  a  change  cannot  come  too 
soon.  In  the  case  of  business  the  effect  of 
the  war  taxes  during  the  year  1920'  was  to 
absorb  so  large  a  part  of  the  current  in¬ 
come  or  liquid  assets  as  to  contribute  very 
greatly  to  the,  embarrassments  of  the  peri¬ 
od  of  liquidation.  Tax  payments  required 
the  renewal  of  many  loans  that  should 
have  been  paid,  and  made  it  difficult  or  im¬ 
possible  to  make  provision  for  the  inevit¬ 
able  shrinkage  of  inventories.  In  numer¬ 
ous  cases  the  taxes  were  imposed  in  re¬ 
spect  of  profits  that  never  existed  except 
on  paper,  and  were  certain  to  disappear 
or  to  be  turned  into  losses  when  the  reac¬ 
tion  came.  For  many  concerns  which 
managed  to  earn  a  substantial  profit  on  the 


36 


operations  of  the  past  year  the  taxes  pay¬ 
able  in  1921  remain  as  a  continuing  cause 
of  slow  liquidation  of  outstanding  loans 
and  embarrassment  in  financing  current 
operations.  Nothing  but  a  period  of 
prosperity  will  thaw  out  many  of  the  cred¬ 
its  which  are  now  frozen,  and  even  this 
will  not  avail  if  an  undue  proportion  of 
future  profits  is  required  for  the  payment 
of  taxes. 


THE  COMMODITY  SALES  TAX. 

A  Review  and  Discussion  of  the  Op¬ 
position  to  a  Commodity  Sales  Tax  Before 
Senate  Finance  Committee,  67th  Congress, 
May  9-27,  1921. 

Prepared  for  Taxation  Committees  of 
New  York  Board  of  Trade  and  Transporta¬ 
tion  and  of  Association  of  Cotton  Textile 
Merchants  of  New  York. 

Robert  R.  Reed, 

Counsel  for  Committee. 

This  survey  of  the  opposition  to  the  com¬ 
modities  sales  tax,  as  presented  in  the 
recent  hearings  before  the  Senate  Finance 
Committee,  has  been  undertaken  upon  re¬ 
quest.  The  purpose  is  to  gather  together  all 
that  has  been  and  can  be  said  against  the 
sales  tax,  to  analyze  and  meet  every  argu¬ 
ment  or  pretended  argument,  to  make  the 
necessary  corrections  of  fact,  and  finally  to 
answer  the  question,  is  there  in  fact  any 
sound  objection  to  the  sales  tax. 

This  52  page  pamphlet  may  be  obtained 
by  request.  Write  to  Galey  &  Lord,  25 
Madison  Ave.,  New  York  City. 


WANTED— MORE  PROFITEERS. 

The  times,  as  everybody  knows,  are  out 
of  joint.  The  ordinary  business  man, 
trained  in  a  sturdy  creed  that  has  genera¬ 
tions  of  evolution  behind  it,  hangs  on  and 
hopes  for  better  times. 

The  first  cause  of  our  present  evils 
everybody  knows.  It  is  the  price  paid  for 
the  war. 

But,  apart  from  this  great  principal 
cause,  other  important  factors  may  be 
making  our  recovery  slower  and  accen¬ 
tuating  a  situation  already  bad  enough. 
And  one  of  these  I  think  to  find  in  the 
extension  of  unsound  government  activity 
and  the  decline  of  individual  self-help  that 
the  war  has  brought  on  as  one  of  its  con¬ 
sequences.  England  and  America  for  six 
generations  of  industry  flourished  upon  in¬ 


dividual  self-help.  Every  man  from  his 
boyhood  acquired  the  idea  that  he  must 
look  after  himself.  Morally,  physically, 
and  financially,  that  was  the  recognized 
way  of  getting  on.  The  desire  to  make  a 
fortune  was  regarded  as  a  laudable  ambi¬ 
tion,  a  proper  stimulus  to  effort.  There 
was  no  income  tax  to  turn  a  man’s  pockets 
inside  out  and  take  away  his  savings.  The 
world  was  to  the  strong. 

Under  the  stimulus  of  this  the  wheels  of 
industry  hummed.  Factories  covered  the 
land.  National  production  grew  to  colos¬ 
sal  size,  and  the  whole  outer  world  seemed 
laid  under  tribute  to  the  great  industry. 
As  a  system  it  was  far  from  perfect.  It 
contained  in  itself  all  kinds  o-f  gross  in¬ 
justices,  profits  that  were  too  great,  wages 
that  were  too  small,  and  all  kinds  of  for¬ 
tuitous  gains  that  corresponded  to  nothing 
at  all  except  sheer  good  luck  or  the  gam¬ 
bler’s  chance.  *  *  * 

Draft  the  Ablest  for  Our  Service. 

Or  turn  to  another  aspect  of  this  same 
principle  of  self-help.  The  way  to  acquire 
knowledge  in  the  earlier  days  was  to  buy  a 
tallow  candle  and  read  a  book  after  one’s 
day’s  work,  as  Benjamin  Franklin  read,  or 
Lincoln;  and  when  the  soul  was  stimu¬ 
lated  to  it,  then  the  aspiring  youth  must 
save  money,  put  himself  through  college, 
live  on  nothing,  think  much,  and  in  the 
course  of  this  starvation  and  effort  be¬ 
come  a  learned  man,  with  somehow  a  pe¬ 
culiar  moral  fiber  in  him  not  easily  repro¬ 
duced  today.  For  today  the  candle  is  free 
and  the  book  is  free  and  the  college  is  free 
and  the  student  has  a  “union”  like  a  prof¬ 
iteers’  club,  and  a  swimming  bath  and  a 
drama  league,  and  has  coeducational  so¬ 
ciety  at  his  elbow  for  which  he  buys 
beauty  roses  at  five  dollars  a  bunch. 

The  Moral  Side. 

Or  turn,  if  one  will,  to  the  moral  side. 
The  older  way  of  being  good  was  by  much 
prayer  and  much  effort  of  one’s  own  soul. 
Now  it  is  done  by  a  board  of  censors. 
There  is  no  need  to  fight  sin  by  the  power 
of  the  spirit:  let  the  board  of  censors  do  it. 
They,  together  with  three  or  four  kinds  of 
United  States  commissioners,  are  supposed 
to  keep  sin  at  arm’s  length  and  to  supply 
a  first-class  legislative  guaranty  of  right¬ 
eousness.  As  a  short  cut  to  morality  and 
as  a  way  of  saving  individual  effort,  our 
legislatures  are  turning  out  moral  legisla¬ 
tion  by  the  yard.  The  legislature  regu¬ 
lates  our  drink;  it  begins  already  to  guard 
us  against  the  deadly  cigarette;  it  regu¬ 
lates,  here  and  there,  the  length  of  our 


37 


skirts;  it  safeguards  our  amusements,  and, 
in  two  states  of  the  American  Union,  it 
even  proposes  to  save  us  from  the  teach¬ 
ing  of  the  Darwinian  theory  of  evolution. 
The  ancient  prayer,  “Lead  us  not  into 
temptation,”  is  passing  out  of  date.  The 
way  to  temptation  is  declared  closed  by 
congressional  statute  and  by  amendment 
to  the  Constitution  of  the  United  States. 
Yet,  oddly  enough,  the  moral  tone  of  the 
world  fails  to  respond.  The  world  is  ap¬ 
parently  more  full  of  thugs,  hold-up  men, 
yeggmen,  bandits,  motor  thieves,  porch 
climbers,  spotters,  spies,  and  crooked  po¬ 
licemen  than  it  ever  was;  till  it  almost 
seems  as  if  the  slow  and  old-fashioned 
method  of  an  effort  of  the  individual  soul 
may  be  needed  still  before  the  world  is 
made  good. 

System  of  Blight. 

This  vast  new  system,  the  system  of 
leaning  on  the  government,  is  spreading 
like  a  blight  over  England  and  America, 
and  everywhere  we  suffer  from  it.  Gov¬ 
ernment,  that  in  theory  represents  a  union 
of  effort  and  a  saving  of  force,  sprawls  like 
an  octopus  over  the  land.  It  has  become 
like  a  dead  weight  upon  us.  Wherever  it 
touches  industry  it  cripples  it.  It  runs 
railways  and  makes  a  heavy  deficit;  it 
builds  ships  and  loses  money  on  them;  it 
operates  the  ships  and  loses  more  money; 
it  piles  up  taxes  to  fill  the  vacuum,  and, 
when  it  has  killed  employment,  opens  a 
bureau  of  unemployment  and  issues  an  ex¬ 
pensive  report  on  the  depression  of  indus¬ 
try. 

The  day  will  come — as  soon  as  people 
want  it  badly  enough  to  do  the  hard  work 
of  making  it — when  government  will  be 
everybody’s  business. 

Government  jobs  will  be  different  then. 
We  will  actually  want  them.  When  we 
have  got  them,  we  will  make  something 
out  of  them.  Prizes  will,  as  ever,  be  to  the 
strong;  but  they  will  be  better  prizes  than 
any  that  the  world  holds  now. 

But  that  day  hasn’t  come  yet.  Leader¬ 
ship  will  have  to  look  forward  to  it,  not 
away  from  it.  Meanwhile,  here  today  the 
only  way  to  restore  prosperity  is  to  give 
back  again  to  the  individual  the  opportun¬ 
ity  to  make  money,  to  make  lots  of  it,  and 
when  he  has  got  it  to  keep  it. 

Let's  All  Be  Profiteers. 

The  world  is  out  of  work  for  the  simple 
reason  that  the  world  has  killed  the  goose 
that  laid  the  golden  eggs  of  industry.  By 
taxation,  by  legislation,  by  popular  senti¬ 


ment  all  over  the  world,  there  has  been  a 
disparagement  of  the  capitalist.  And  all 
over  the  world  capital  is  frightened.  It 
goes  and  hides  itself  in  the  form  of  an  in¬ 
vestment  in  a  Victory  Bond,  a  thing  that  is 
only  a  particular  name  for  a  debt,  with  no 
productive  effort  behind  it  and  indicating 
only  a  dead  weight  of  taxes.  There  capital 
sits  like  a  bullfrog  hidden  behind  water 
lilies,  refusing  to  budge. 

Hence  the  way  to  promote  prosperity  is 
not  to  multiply  our  present  government  de¬ 
partments  and  government  expenditures, 
nor  to  appoint  commissions  and  to  pile  up 
debts,  but  to  start  going  again  the  machin¬ 
ery  of  bold  productive  effort.  Take  off  all 
the  excess-profits  taxes  and  the  supertaxes 
on  income  and  as  much  of  the  income  tax 
itself  as  can  be  done  by  a  wholesale  dis¬ 
missal  of  unnecessary  government  employ¬ 
ees  and  then  give  industry  a  mark  to  shoot 
at.  What  is  needed  now  is  not  the  multi¬ 
plication  of  government  reports,  but  cor¬ 
porate  industry,  the  formation  of  land  com¬ 
panies,  development  companies,  irrigation 
companies,  any  kind  of  corporations  that 
will  call  out  private  capital  from  both  its 
proud  and  its  humble  hiding  places,  offer 
employment  to  millions  and  start  the 
wheels  moving  again. 

The  thing  to  be  done,  then,  is  to  “fire” 
the  unnecessary  government  officials  and 
to  bring  back  the  “profiteer” — or,  no,  let 
me  alter  that,  not  to  bring  back  the  “prof¬ 
iteer”  himself — let  him  stay  in  his  peni¬ 
tentiary — but  to  bring  back  the  spirit  of 
enterprise  and  effort  of  which,  after  all,  he 
was  only  a  distorted  and  misshapen  form. 
What  we  want  is  not  the  old  profiteer,  but 
a  profiteer  of  a  newer  kind:  a  man  with 
capital,  much  or  little,  and  the  energy  and 
the  determination  to  stand  on  his  own 
feet  and  not  sit  in  the  lap  of  a  government 
department.  Under  such  terms  there  is 
no  reason  why  we  shouldn’t  all  be  profit¬ 
eers — why  we  shouldn’t  organize  ourselves 
into  whole  nations  of  them. 

A  few  years  ago  a  man  who  made  a  lot 
of  money  in  anything  approaching  a  Chris¬ 
tian  fashion,  and  with  anything  like  a  spirit 
of  fair  play  to  his  fellow  men  in  the  doing 
of  it,  was  designated  a  captain  of  industry 
and  a  nation  maker.  Why  not?  But  now¬ 
adays  the  voice  of  the  man  standing  upon 
the  soap  box  has  become  so  loud  that  the 
very  word  “capital”  is  discredited.  Rush¬ 
ing  from  one  extreme  to  another,  the  same 
people  who  enthroned  the  “nation  builder” 
of  a  few  decades  ago  denounce  him  now. 
Wealth  itself  becomes  an  object  of  suspi¬ 
cion.  All  profits  are  presumed  to  be  ill 
gotten. 


38 


I  declare  that  if  we  can  find  no  better 
way  of  attempting  to  restore  prosperity 
than  by  the  endless  multiplication  of  gov¬ 
ernment  jobs,  it  would  be  better  for  us  to 
bring  back  even  the  profiteer  himself  and 
ask  him  to  rule  over  us,  to  fetch  him  from 
the  Riviera,  from  his  country  place  on  the 
Hudson,  or  from  whatever  spot  to  which 
he  has  withdrawn  with  his  tin  box  full  of 
Victory  Bonds. 

Only  promise  that  it  is  not  going  to  be 
taxed  out  of  existence  and  the  stream  of 
capital  which  is  being  dried  up  in  the 
sands  of  government  mismanagement  will 
flow  into  the  hands  of  private  industry 
like  a  river  of  gold. 

But  how  much  better  to  take  over  the 
job  ourselves;  put  ourselves  into  it  with 
as  much  of  the  old  reliant  spirit  that  built 
up  American  and  British  civilization  as  we 
can  find  surviving  still  among  us,  and 
make  things  more  in  earnest. 

Come,  let  us  take  our  coats  off. 

STEPHEN  LEIACOCK. 
Collier’s  Weekly,  May  6,  1922. 


PRESENT  TAX  SYSTEM  DRAINS 
CAPITAL  FROM  BUSINESS 

Business  men  all  over  the  United  States 
are  bitterly  opposed  to  the  present  tax 
system. 

But  probably  a  very  large  majority  of 
the  smaller  business  people  are  opposed  to 
it  only  in  a  general  way  and  have  not  given 
much  thought  to  the  destructive  effects  of 
the  system. 

The  opposition  in  the  rank  and  file  of 
those  not  giving  deep  study  to  the  subject 
has  developed  mainly  because  of  the  diffi¬ 
culty  in  making  out  tax  statements.  There 
have  never  been  on  the  statute  books 
laws  in  which  provisions  for  reports  are 
so  complicated  and  so  obscure  as  those 
now  existing  in  regard  to  taxes.  Weeks 
and  months  have  to  be  spent  in  wading 
through  the  intricate  and  conflicting  sched¬ 
ules,  and,  perhaps,  worst  of  all,  with  no 
certainty,  when  the  result  has  been  arrived 
at,  that  it  will  not  be  thrown  out  years  af¬ 
terward  and  statements  returned  for  cor¬ 
rections  or  more  details. 

A  revision  of  the  law  was  made,  to  take 
effect  on  January  1  of  this  year,  but  this 
revision  is  a  rehash  of  the  former  evils 
and  plunges  the  country  into  a  chaos  of 
new  mimnd”rRtanding.  Those  who  have 
given  the  tax  any  studv  find  that  the  mean¬ 
ing  of  a  disturbing  number  of  added  provi¬ 


sions  is  shrouded  in  mystery  by  the  lan¬ 
guage  employed  and  that  more  questions 
even  than  in  the  old  law  will  have  to  be 
left  to  interpretation  and  ruling  by  the 
Revenue  Department.  This  is  shown  by 
the  very  much  larger  number  of  instruc¬ 
tions  and  explanations  already  issued  by 
the  department  thus  far.  This  in  itself  is 
almost  a  national  calamity. 

Injustice  Fosters  Resentment 

Professional  people  and  others  who  do 
not  keep  regular  books  are  compelled  to 
give  days  and  days  of  valuable  time,  which 
they  can  ill  afford,  to  guessing  at  conclu¬ 
sions,  never  with  the  conviction  of  having 
arrived  at  a  correct  solution,  while,  if  ex¬ 
perts  are  employed,  the  cost  runs  up  far 
beyond  what  can  be  afforded  in  many 
cases.  Such  expert  assistance  as  may  be 
used  in  the  instances  of  large  incomes 
must  necessarily  have  for  its  object  the 
avoidance,  if  possible,  of  as  much  of  the 
tax  as  can  in  any  way  be  evaded.  As  this 
operation  is  continued  from  year  to  year 
without  relief,  and,  in  fact,  with  added  un¬ 
certainty,  a  spirit  of  rebellion  against  all 
law  and  a  most  unhappy  habit  of  mind  are 
being  generated  in  the  American  people. 

The  reflex  of  this  situation  is  shown  in 
the  condition  in  the  Internal  Revenue  De¬ 
partment.  Here  the  statements  of  previ¬ 
ous  years,  still  unchecked,  are  piled  up, 
and  it  is  stated  officially  that  the  returns 
of  1917  and  1918  have  not  yet  been  com¬ 
pletely  audited.  The  fact  is  that  under 
the  present  tax  system  it  is  impossible  to 
collect  the  amounts  due  with  any  certain¬ 
ty  of  completeness,  or  even  of  justice. 

Most  Destructive  Feature. 

This  matter  of  uncertainty  and  com-plex- 
ity  in  the  manner  of  making  out  state¬ 
ments  and  returns  is  only  one  of  the  evils, 
and  as  compared  with  the  ruinous  effect  of 
taxation  on  the  country,  the  least  of  the 
two  evils. 

The  drainage  of  capital  from  business 
through  the  operations  of  the  law,  is  the 
most  destructive  feature  of  the  present  tax 
system.  It  must  be  understood  that  this 
has  been  operating  continuously  for  five 
years  or  more  and  that  a  great  part  of  the 
business  depression  from  which  we  have 
not  yet  emerged,  is  due  to  this  cause. 
While  the  average  rank  and  file  of  busi¬ 
ness  men  have  not  perhaps  fully  appreci¬ 
ated  this,  it  is  well  understood  by  the 
thinking  part  of  the  industrial  community. 

Enterprise  Paralyzed. 

One  of  my  correspondents  who  is  in  a 
business  which  has  felt  these  bad  effects, 


!9 


says:  “These  unscientific  taxes  are  so 
burdensome  that  the  big  business  man  re¬ 
fuses  to  exert  himself  when  he  knows  that 
the  result  of  the  major  portion  of  his  ef¬ 
forts  must  go  to  the  Government  in  the 
form  of  taxes.  He  is  prevented  from  en¬ 
larging  his  business — and  employing  more 
labor — because  nearly  all  of  his  profits 
must  be  kept  in  cash  to  pay  the  Govern¬ 
ment.  He  cannot  offer  a  piece  of  machin¬ 
ery  or  a  package  of  bills  receivable 
of  accounts — due  in  payment  of  the  taxes 
— it  must  be  cash.” 

He  then  points  out,  as  a  second  great 
depressant  at  the  present  time,  “extrava¬ 
gance  in  government,  which  includes  too 
many  office  holders,  too  much  unbusiness¬ 
like  handling  of  the  affairs  of  government.” 

As  I  have  said,  the  great  army  of  think¬ 
ing  business  men  in  this  country  believe, 
and  are  justified  in  believing,  that  the  tax 
burden,  more  than  any  other  obstacle, 
holds  back  real  prosperity  and  takes  the 
courage  out  of  all  enterprise.  They  are 
convinced  that  our  destructive  tax  system 
continues  to  drive  capital  out  of  business, 
penalizing  success  by  heavy  confiscation  of 
profit  but  taking  no  share  in  losses.  En¬ 
terprise  is  thus  hampered  and  initiative 
paralyzed. 

Class  Penalization  Effort. 

Because  of  the  wide  knowledge  of  what 
happened  at  the  time,  it  is  unnecessary  to 
go  into  an  explanation  here  of  how  the 
country  became  saddled  with  the  present 
monstrous  and  unmanageable  tax  system. 
Briefly,  it  may  be  said  that  it  was  because 
of  war  taxes  imposed  in  an  emergency — 
taxes  which  were  not  scientific  and  were 
not  intended  to  be,  were  not  just  and 
equable  and  were  not  meant  to  be,  and 
whose  sponsors  had  in  mind  only  one  ob¬ 
ject,  namely,  to  raise  vast  sums  of  money 
and  to  make  the  rich  pay  these  sums.  The 
great  amounts  of  money  were  raised,  but 
the  rich  only  paid  a  part  of  them  at  first, 
and  have  been  paying  less  and  less 
through  investment  in  tax-exempt  secur¬ 
ities.  The  great  burden  has  fallen,  as  is 
always  the  case,  upon  the  consumers,  who 
are  undoubtedly  paying  today  from  10  to 
20  per  cent  (and  during  the  periods  before 
the  1920  break  they  paid  20  to  40  per  cent) 
more  than  the  Government  gets  by  reason 
of  taxes  being  overloaded  on  to  prices  of 
things. 

Public  Pays  the  Penalty. 

Five  and  a  half  billion  dollars  and  over 
was  collected  in  taxes  by  the  Government 
in  1920,  and  this  amount  was  undoubtedly 


all  paid  by  the  ultimate  consumer  and  not 
by  the  rich  man.  But  further  than  this,  by 
reason  of  overloading  the  tax  on  prices, 
probably  double  that  amount  was  paid  by 
the  consumer. 

The  great  argument  in  Congress  against 
a  consumption  tax  has  been  that  it  would 
shift  the  burden  “now  paid  by  the  wealth 
of  the  country  over  to  the  shoulders  of  the 
consumers  of  the  land.”  But  every  Con¬ 
gressman  who  has  given  the  subject  any 
study  knows  that  this  is  not  true  and  that 
the  consumers  now  pay  all  of  the  taxes. 

Business  Starved  of  Capital 

Jules  S.  Bache,  in  a  recent  address,  said: 
“The  rich  men  of  this  country  need  no  pro¬ 
tection.  If  they  are  rich  enough  to  live 
on  their  incomes  without  working  with 
their  capital,  they  are  guaranteed  against 
taxes  by  the  tax-exempt  security.  And 
they  are,  one  by  one,  gradually  taking 
refuge  in  it  until  most  large  fortunes  are 
fairly  freed  from  the  burdens  of  taxation. 

“This  brings  the  burden  of  the  enormous 
sums  which  we  must  raise  down  until  it 
bears  directly  upon  the  business  man,  who 
works  with  his  capital  and  who  cannot  es¬ 
cape  taxation  if  he  makes  any  money;  and 
there  is  not  sufficient  profit  in  the  business 
of  today  to  furnish  the  four  billions  re¬ 
quired.  Nor  is  there  any  incentive  to 
make  such  profits. 

“Day  after  day  business  opportunities 
are  declined  by  capitalists,  who  see  no  in¬ 
centive  to  risk  their  money  in  the  possi¬ 
bility  of  being  allowed  to  retain  50*  per 
cent  of  a  possible  profit  and  pay  100  per 
cent  of  the  loss,  if  there  is  one.” 

The  Sales  Tax  Remedy. 

As  to  what  the  remedy  is,  the  great  rank 
and  file  of  business  men  have  made  up 
their  minds  and  have  expressed  the  deci¬ 
sion  again  and  again,  through  widespread 
referenda,  including  that  of  the  United 
States  Chamber  of  Commerce,  the  National 
Association  of  Manufacturers  and  many 
others,  recording  an  edict  overwhelmingly 
in  favor  of  the  sales  tax. 

It  is  the  remarkable  thing  that  while 
three  years  ago,  when  the  principles  of  a 
sales  tax,  exactly  as  now  upheld,  were  ad¬ 
vocated  in  the  Bache  Review  in  January, 
1918,  comparatively  few  people  had  ever 
heard  of  it,  and  that  a  year  ago  its  merits 
began  to  be  evident  to  thinking  people,  to¬ 
day,  far  and  wide,  among  all  classes  of 
I  people,  a  vast  constituency  has  developed. 


40 


which  insists  that  the  sales  tax  is  the 
sound  solution  of  our  revenue  problems. 

Fair  to  All — Easy  to  Collect. 

It  is  well  to  impress  in  outline  the  simple 
form  of  the  tax  most  in  favor — that  con¬ 
templated  in  Senator  Smoot’s  main  bill. 
In  this  a  general  turnover  tax  of,  say  one 
per  cent,  is  to  be  imposed  on  all  sales  of 
goods,  wares  and  merchandise.  Everyone 
selling  any  kind  of  goods  must  apply  to  the 
Federal  collector  of  the  district  for  a  tax 
license,  to  be  furnished  at  the  cost  of  one 
dollar  per  year.  This  would  enroll  every 
prospective  taxpayer  on  the  books  of  the 
Revenue  Department.  At  the  end  of  each 
month,  anyone  who  had  made  any  sales 
(and  everyone  would' be  required  to  keep 
a  daily  record  of  such  sales)  would  foot  up 
the  gross  amount  sold,  make  a  statement 
out  as  to  the  total  amount,  and  forward  a 
check  for  one  per  cent  of  such  gross 
amount  to  the  collector  in  his  district. 

This  would  end  his  responsibility.  Five 
or  ten  minutes  is  about  all  that  would  be 
required  twelve  times  a  year,  and  this 
would  take  the  place  of  all  the  worry,  con¬ 
fusion,  doubt  and  apprehension  surround¬ 
ing  the  taxpayer  all  through  the  year,  and 
reaching  its  peak  of  intensity  in  March 
and  April. 

The  relief  and  freedom  thus  accorded  to 
the  American  citizen  would  fall  upon  him 
like  a  benediction.  It  is  proposed  that 
annual  sales  of  $6,'(M)0  or  less  be  exempted 
from  taxation,  and  this  would  release  a 
very  large  part  of  the  farming  community, 
would  make  it  unnecessary  for  the  laborer 
to  report,  and  would  exempt  the  small 
vendors  of  the  country,  the  collection  and 
supervision  of  whose  returns  would  prob¬ 
ably  entail  more  expense  and  trouble  than 
the  amount  to  be  collected  would  warrant. 

A  sales  tax  levied  at  1  per  cent  would 
yield  anywhere  from  a  billion  and  a  half 
up  to  probably  four  or  five  billions  of  dol¬ 
lars,  depending  upon  the  extension  of  its 
incidence. 

Would  Raise  Funds  Needed 

Under  the  Smoot  bill,  with  provisions  as 
above  outlined,  it  is  estimated  to  yield 
$1,500,000,000  in  years  like  1921,  and  more 
in  active  business  years. 

If  the  sales  tax  were  adopted  a  straight 
income  tax  could  be  assessed,  wiping  out 
all  surtaxes.  This,  with  the  revenue  from 
customs  and  the  taxes  on  tobacco  and 
liquors,  would  enable  such  of  the  .nuisance 
taxes  as  are  left  to  be  wiped  out  com¬ 
pletely. 


One  of  the  objections  urged  by  the  pro¬ 
fessors  in  the  Internal  Revenue  Department 
is  stated  to  be  that  the  department  is  al¬ 
ready  so  hopelessly  involved  that  the  addi¬ 
tion  of  a  further  system  of  taxation  would 
result  in  chaos.  But  the  experiences  of 
Canada  completely  disprove  any  such  con¬ 
tention. 

Works  Smoothly  in  Canada. 

When  the  80  Congressmen,  at  the  invita¬ 
tion  of  the  New  York  American,  visited 
Canada  to  inform  themselves  about  the 
working  of  the  sales  tax  there,  the  Mayor 
of  Ottawa  informed  them  that  it  took  a 
force  of  only  40  men  in  the  whole  province 
to  collect  the  tax.  He  said: 

“My  force  consists  of  but  forty  men.  We 
use  various  Government  offices  through¬ 
out  the  country,  so  the  cost  of  collection  is 
almost  nil. 

“We  use  the  150  so-called  superior  tax 
offices  in  the  country,  and  in  very  small 
places  the  customs  officer  collects  the  tax 
and  turns  it  over  to  the  nearest  superior 
tax  office. 

“Because  of  our  simple  method  of  check¬ 
ing  up  there  is  no  fraud.  We  know  in¬ 
stantly  what  tax  is  due  from  manufactures, 
wholesalers,  jobbers,  etc.,  and  we  know 
what  every  producer  in  the  country  is 
doing. 

“Take  a  $5  pair  of  shoes.  The  manufac¬ 
turer  pays  1 V2  per  cent;  that  is  7*%  cents. 
The  wholesaler  or  retailer  pays  a  similar 
amount.  The  amounts  are  so  small  that 
often  the  tax  charge  is  absorbed  in  the 
actual  cost  of  goods  to  the  wholesaler  or 
retail  purchaser. 

“The  consumer,  then,  pays  only  a  certain 
fixed  sum  and  he  is  not  frightened  when  he 
is  told  the  price  of  an  article  is  so  much, 
plus  a  sales  tax.  This  encourages  pur¬ 
chases. 

“I  have  talked  to  and  received  reports 
from  some  of  the  biggest  corporations  in 
the  United  States  with  Canadian  branches, 
and  they  all  assert  that  there  never  was  a 
tax  so  easy  to  collect  and  so  faultless,  both 
from  their  own  standpoint  and  from  an 
administrative  viewpoint.  I  have  not  yet 
come  across  a  single  business  man  or  firm 
that  has  not  said  the  Sales  Tax  is  fair.” 

Its  Popularity. 

There  has  been  a  desperate  attempt  on 
the  part  of  the  few  professional  opponents 
of  the  sales  tax  to  discredit  its  popularity 
in  Canada.  The  Evening  Sun,  of  Balti- 


41 


more,  last  month  sent  a  representative  to 
Canada  where  the  sales  tax  has  been  in 
effect  for  two  years,  and  the  result  of  his 
observations,  recorded  in  a  series  of  three 
articles,  is  to  the  effect  that  in  spite  of  an 
increase  in  the  rates  the  second  year,  from 
1  per  cent  to  iy2  per  cent,  there  is  an  ab¬ 
solute  minimum  of  opposition  to  the  tax, 
a  negligible  public  objection  to  the  levy, 
and  an  indication  by  statistics  that  the 
cost  of  living,  instead  of  advancing,  has 
dropped. 

The  tax  was  put  in  force  by  the  Conserv¬ 
atives  two  years  ago,  and  notwithstanding 
that  they  were  swept  out  of  power  in  the 
last  election  by  the  Liberals,  the  tax  has 
been  left  to  stand  and  it  is  impossible  to 
find  one  prominent  Liberal  who  openly  ad¬ 
vocates  the  repeal  of  the.  sales  tax  or 
shows  any  inclination  to  do  so.  The  cor¬ 
respondent  says: 

“One  chief  reason  for  this  may  be 
gleaned  from  the  remark  of  a  Toronto 
workingman  with  a  broad  Scotch  accent, 
who  was  asked  how  the  sales  tax  was  con¬ 
sidered  in  labor  circles.  He  replied: 
‘Sales  tax?  Why,  this  domned  thing  was 
done  away  with  some  time  ago.’  He  was 
thinking  of  the  so-called  luxury  tax,  which 
was  combined  with  the  first  sales  tax  of 
May,  1920.  He  did  not  even  know  that  a 
stiffer  sales  tax  had  taken  its  place.  Bet¬ 
ter  informed  Canadians  have,  of  course, 
read  of  such  a  tax,  but  they  appear  to  feel 
its  effects  as  little  as  the  Scotch  working¬ 
man. 

“For  whatever  else  it  may  be,  it  is  a 
‘hidden  tax,’  a  'painless  extraction’  from 
the  pocketbook,  with  the  taxpayer  under 
an  anaesthetic  of  ignorance  as  to  when 
and  by  whom  the  extraction  is  done,  nor 
indeed  aware  that  his  pocketbook  has  been 
touched  at  all.” 

Any  movement  which  is  backed  by  the 
brains  and  energy  of  the  sound  business 
men  of  the  country  as  universally  as  is  the 
Sales  Tax,  is  bound  eventually  to  be  put 
into  operation,  not  because  it  will  benefit 
any  particular  class,  which  it  will  not,  but 
because  it  will  immeasurably  work  for  the 
well-being  of  every  American  citizen. 

WILLIAM  C.  CORNWELL. 

N.  Y.  Commercial,  April  28. 


POLITICS  AND  THE  SALES  TAX. 

The  result  to  date  is  that  the  farmer  and 
workingman  organizations  are  playing  into 
the  hands  of  interests  which,  to  put  it  con¬ 
cretely,  and  perhaps  too  strongly,  wish  to 


levy  their  own  consumption  tax  on  the  pub¬ 
lic.  It  is  this  kind  of  opposition  which  has 
played  up  the  commodities  sales  tax  as  a 
proposal  to  shift  the  burden  of  taxation 
from  the  rich  to  the  poor.  Such  assump¬ 
tion  is  politically  popular  and  absolutely 
false. 

For  many  years  we  have  been  develop¬ 
ing  a  condition,  in  state  and  nation,  where 
exaggerated  promises  and  panaceas  are 
held  out  to  the  voters,  even  enacted  into 
statutes,  which  somehow  or  other  rarely 
accomplish  or  do  what  is  declared.  The 
higher  surtaxes  as  they  now  exist  are  a 
political  lie.  Every  lawyer  familiar  with 
their  actual  operation  knows  this.  I  have 
followed  the  income  tax  from  its  incep¬ 
tion,  both  in  Congress  and  in  the  Treasury, 
and  also  in  my  practice  for  clients.  I  find 
that  these  highest  surtaxes  rest  on  acci¬ 
dents — not  on  real  income.  The  man  of 
large  invested  wealth  may  escape  them  en¬ 
tirely.  If  he  assumes  them,  he  commands 
a  price  for  his  capital  that  relieves  him 
of  the  tax. 

The  average  business  man  whose  profits 
come  from  risk  and  personal  effort,  the 
man  who  has  made  America,  pays  them  at 
the  peak  of  his  earning  power  according 
to  the  accident  of  his  profits. 

When  he  asks  his  Congressman  about 
it,  he  is  told  that  these  high  taxes  were 
Intended  for  the  millionaire — for  the  idle 
rich.  The  Congressman  is  very  sympa¬ 
thetic  when  he  learns  at  first  hand  the 
practical  operation  of  the  tax,  but  when 
you  appeal  to  him  at  Washington  he  lets 
you  know  that  the  average  voter  still 
thinks  these  taxes  rest  on  the  rich,  and  if 
he  votes  to  reduce  them  he  will  or  may 
lose  his  job.  You  may  also  find  that  the 
tax  representative  of  some  favored  indus¬ 
try,  opposed  to  the  sales  tax,  has  some¬ 
thing  to  do  with  it. 

In  perpetuating  this  political  lie  and  to 
secure  this  one  and  tme-half  per  cent  of  the 
revenue,  the  normal  conditions  of  business 
are  reversed.  Great  investment  wealth, 
which  should  and  would  take  business 
risks,  is  driven  into  hiding.  The  very  rich 
class  pretended  to  be  taxed  is  protected 
and  made  exclusive — protected  by  being 
driven  into  safe  tax-free  securities,  and 
exclusive  because  the  rest  of  us  are  taxed 
to  destruction  if  we  have  the  ability  and 
business  opportunity  and  dare  to  take  the 
risks  necessary  to  make  substantial  profits. 

It  is  the  business  and  the  individual,  the 
workingman  and  the  farmer,  not  invest¬ 
ment  or  wealth,  that  suffers  from  the  un¬ 
productive  surtaxes,  from  the  political  lie 


42 


which  perpetuates  them.  Wealth  is  ex¬ 
empt;  monopoly  is  favored  by  the  restric¬ 
tion  of  competition  and  the  slaughter  of 
individual  aspirants.  Business  halts,  labor 
is  unemployed,  and  farm  products  must  be 
sold  for  less  than  a  living  profit. 


OVERTAXATION. 


Capital  can  be  assessed,  but  production 
must  pay  the  tax  bill.  That  payment  must 
be  drawn  from  cash,  from  payroll,  or  from 
credit.  There  can  be  no  cash,  no  payroll, 
nvorHt  without  oroduction. 


What  we  are  facing  today  is  a  drop  in 
the  revenue  yield  of  a  tax  on  incomes  far 
exceeding  the  decline  in  revenue  require¬ 
ments.  This  drop  is  induced  not  only  by 
business  depression,  but  by  the  fifty-seven 
varieties  of  avoidance  under  a  tax  system 
of  accidents. 

Economic  Heresy  Political  Cowardice 

As  against  the  kind  of  tax  economics 
which  I  have  quotfed,  if  we  can  call  it 
such,  the  advocates  of  the  commodities 
sales  tax  propose  a  dependable  base  or 
foundation  for  Federal  revenue.  They 
suggest  that  there  should  be  a  low  rate 
productive  tax  on  a  dependable  source, 
and  the  source  they  have  indicated  is  com¬ 
modity  sales.  These  constitute  the  most 
constant  class  of  necessary  transactions, 
transactions  which  vary  least  with  indus¬ 
trial  changes,  which  can  be  least  readily 
avoided  or  fabricated,  and  the  taxation  of 
which  will  least  disturb  the  normal  free¬ 
dom  of  industry.  We  do  not  propose  this 
as  an  exclusive  tax  or  as  a  substitute  for 
anything  except  economic  heresy  and  po¬ 
litical  cowardice.  We  do  say  that,  given 
this  dependable  base  tax,  Congress  can  and 
should  continue  the  income  tax,  and,  as 
conditions  permit,  endeavor  to  make  the 
whole  tax  system  rest  according  to  ability 
on  the  expenditures  and  income  of  the 
country. 

With  this  base  tax  on  all  and  the  added 
taxes  on  incomes  as  they  rise,  we  have  at 
least  in  principle  the  ideal  of  taxation  ac¬ 
cording  to  ability. 

We  have  called  the  sales  tax  the  honest 
consumption  tax,  to  emphasize  the  political 
dishonesty  of  a  tax  nominally  on  wealth, 
which,  in  its  necessary  effects,  throws  not 
only  its  cost,  but  an  added  burden  on  con¬ 
sumption. 

When  this  final  fact  is  brought  home  to 
the  farmer  and  the  workingman,  when  they 
realize  the  futility  and  political  hypocrisy 
of  the  pretended  tax  on  wealth,  we  should 
see  a  definite  reversal  of  their  opposition 
to  the  most  honest  and  least  burdensome 
form  of  a  consumption  tax. 

ROBERT  R.  REED. 
The  Forum,  May,  1922. 


If  1913  production  could  not  have  sus¬ 
tained  a  $4, 000, 00*0', 000  budget,  1921  produc¬ 
tion  will  not.  Ordinary  government  rev¬ 
enue  in  1913  was  $691,000,000.  We  pro¬ 
duced  less  wheat,  oats,  barley,  wool,  cot¬ 
ton,  coal  and  pig  iron  in  1921  than  in  1913. 
In  the  gross  decline  iron  ore  is  found  down 
of  iQfU.  tnnrmere. 


Since  1917  we  have  kept  even  with  the 
government  by  falling  behind  with  each 
other.  Today  bankruptcies  are  at  a  rate 
never  equaled  before,  though  we  had  1,000,- 
000  merchants  as  far  back  as  nine  years 
ago. 

Idle  factories,  the  spent  force  of  indus¬ 
trial  inflation,  mark  the  necessary  conse¬ 
quence  of  anticipated  national  income.  De¬ 
pleted  payrolls  and  half  time  witness  to 
the  axiomatic  truth  that  except  in  the  form 
of  products  capital  cannot  pay  taxes. 

If  the  billion  dollar  Congress  of  1913 
taxed  us  according  to  our  actual  worth,  in 
the  current  fiscal  year  we  are  to  pay  from 
four  to  six  times  more  than  we  should.  We 
will  have  to  do  as  we  have  done  ever  since 
1917.  We  must  pay  what  we  can  through 
production,  and  we  must  borrow  the  rest. 
We  will  have  a  carry-over  on  the  private 
ledger. 

We  are  trying  out  the  easiest  short  cuts. 
What  we  produce  we  consume,  exchange 
or  waste.  The  sales  tax  will  reach  some 
of  that  waste.  It  will  do  other  good.  The 
tariff  will  reach  products  for  which  we  ex¬ 
change  our  own.  Some  of  our  burden  will 
be  cached  in  bank  loans  and  mortgages. 
Our  income  tax  system  will  make  that  bur¬ 
den  seem  less  intolerable  than  it  is. 


Economic  Decay. 


But  the  economic  decay  from  overtaxa¬ 
tion  will  not  be  arrested  by  systems  mak¬ 
ing  it  easier.  Neither  sales  taxes  nor  the 
repeal  of  exemptions  will  stop  overtaxa¬ 
tion.  It  is  a  condition  calling  for  ampu¬ 
tation,  as  well  as  septic  drainage. 

Congress  still  tries  “to  function”  in  fields 
far  removed  from  its  natural  operations. 
A  great  part  of  the  $4, (KM), 000, 000  1921  bud¬ 
get  is  traceable  to  experimentation  from 
1913  to  1921  in  political  sociology. 


43 


We  do  not  have  the  production  we 
should  have.  We  are  not  yet  able  to 
square  taxation  with  what  we  produce.  We 
have  not  yet  passed  from  out  the  shadow 
of  public  expenditure  for  regulatory  tests, 
for  restrictive  supervision,  for  state  gov¬ 
ernment  of  business.  Until  and  unless  we 
do  so  fully,  production  will  not  overtake 
taxation,  nor  shall  we  again  have  govern¬ 
ment  devoted  to  freedom  of  trade  and 
manufacture  within  the  law,  as  we  have 
known,  revered  and  prospered  under  it 
now  well  on  to  a  century  and  a  half. 


TAXES  AND  UNEMPLOYMENT 

A  tax  is  an  appropriation  of  private 
property  for  public  purposes.  It  takes 
from  the  taxpayer  a  certain  amount  of 
money  which  otherwise  he  might  have  used 
in  the  purchase  of  goods  or  to  make  in¬ 
vestment,  and  it  therefore  follows  that  to 
the  extent  the  tax  is  increased  the  ability 
of  the  taxpayer  to  purchase  goods  or  make 
investments  has  been  decreased.  If  the 
tax  assessed  can  be  added  to  the  cost  of 
goods  sold  by  the  initial  taxpayer,  he 
passes  the  tax  on  to  the  ultimate  consum¬ 
er,  who  covers  it  in  the  increased  price  of 
the  goods  he  purchases.  This  increase  in 
the  price  lessens  the  amount  of  the  con¬ 
sumer’s  purchases,  and  to  that  extent  lim¬ 
its  production  and  so  directly  interferes 
with  employment. 

This  chain  of  causation  is  as  certain  as 
the  seasons.  With  every  increase  in  tax¬ 
ation  an  increasing  number  of  persons  de¬ 
siring  employment  are  cut  off  therefrom, 
unless  the  public  expenditure  of  the  taxes 
raised  furnishes  capital  to  business,  or  cre¬ 
ates  an  effective  demand  for  the  products 
of  industry  equal  in  amount  to  the  funds 
in  private  hands. 

In  what  respects,  then,  do  public  differ 
from  private  expenditures?  What  are  the 
effects  of  these  differences  on  the  employ¬ 
ment  of  productive  labor?  During  the 
world  war  over  95  per  cent  of  our  total 
Federal  budget  was  attributable  to  war, 
and  even  since  the  armistice  this  ratio  has 
changed  only  to  a  limited  degree.  Of  our 
state  expenditures,  more  than  20  per  cent 
go  to  the  support  of  institutions  alone. 
Public  works,  education  and  highways  are 
the  chief  concern  of  our  municipalities.  It 
is  evident  that  public  expenditures  as  a 
whole  are  totally  different  from  private 
expenditures,  and  this  is  so  because  gov¬ 
ernments  primarily  perform  social  func¬ 
tions  and  individuals  are  interested  in  pro¬ 
duction. 


If  a  citizen  invests  $10,000  in  a  wooleD 
mill  he  will  create  a  demand  for  labor; 
labor  will  produce  cloth,  and  at  the  sam^ 
time  his  investment  will  probably  no. 
merely  remain  intact,  but  will  be  aug 
mented.  If  the  government  takes  thi^ 
$10,000  by  taxation,  the  citizen  will  be  un¬ 
able  to  make  the  investment.  The  govern 
ment,  having  collected  the  tax,  will  pay 
out  most  of  it  for  wages  of  soldiers,  sail¬ 
ors,  clerks  and  officials.  The  recipients 
of  the  money  produce  no  goods,  and  the 
$10,000  is  no  longer  available  for  industry, 
having  been  destroyed  through  consump¬ 
tion. 

The  same  result  occurs  in  the  case  of 
the  great  bulk  of  our  state  and  municipal 
expenditures.  While  these  may  all  be  of 
great  social  use,  they*  are  of  little  or  no 
economic  value  and  they  fail  to  furnish,  ex¬ 
cept  to  a  very  limited  extent,  funds  for  the 
employment  of  productive  labor. 

Extravagant  Public  Expenditures. 

In  the  world’s  history  there  have  been 
several  instances  of  governments  making 
large  public  expenditures,  usually  for  per¬ 
sonal  gratification  of  dictatorial  monarchs. 
When  the  high  taxes  necessary  to  defray 
these  projects  were  criticised,  the  dic¬ 
tators’  friends  defended  them  on  the  the¬ 
ory  that  if  public  moneys  are  expended 
entirely  among  the  monarchs’  subjects, 
there  can  be  no  loss.  The  fallacy  in  this 
argument  lies  in  a  failure  to  distinguish 
between  productive  and  non-productive  la¬ 
bor,  and  in  assuming  that  because  there 
has  been  no  decrease  in  the  amount  of 
money  in  the  country,  there  has  been  no 
loss,  although  the  products  of  labor  have 
been  consumed  or  destroyed.  For,  consid¬ 
ering  only  the  health  and  prosperity  of 
mankind,  productive  labor,  or  mental  labor 
aiding  in  the  direction  of  productive  labor, 
is  the  only  valuable  form  of  work.  The 
failure  to  understand  this  truth  led  to  the 
extravagant  public  expenditures  which 
caused  the  fall  of  Rome  and  practically 
ruined  France  under  Louis  XIV. 

Since  the  purposes  of  government  are 
social  and  not  economic,  it  is  evident  that 
every  increase  in  taxation  must  result  in 
an  increase  in  the  number  of  unemployed. 
If  taxes  were  materially  reduced,  what 
,  would  happen?  We  may  assume  that  ap¬ 
proximately  10  per  cent  of  our  adult  popu- 
I  lation  who  desire  to  engage  in  gainful  oc¬ 
cupations  are  now  unable  to  find  employ¬ 
ment  and  that  about  20  per  cent  of  the 
total  income  of  the  citizens  of  the  United 
States  is  collected  in  the  form  of  taxes. 
If  these  taxes  were  cut  in  half  involuntary 


44 


►unemployment  would  practically  disappear 
because  $3,00,0,000,00l0  now  annually  con¬ 
sumed  unproductively  by  nation,  state  and 
municipality  would,  to  a  large  extent,  in 
private  hands  be  turned  into  productive 
channels.  In  productive  enterprises  there 
is  one  employe  for  about  every  $2,000  of 
invested  capital,  and  therefore  the  invest¬ 
ment  of  this  $3,000,000,000*  in  industry 
would  give  employment  to  1,500,000  work¬ 
men.  The  curtailment  of  government  ac¬ 
tivities  would  turn  perhaps  one-half  a  mil¬ 
lion  government  employes  to  productive 
labor,  and  the  net  result  would  be  the  em¬ 
ployment  of  1,000. 000  persons  now  unwill¬ 
ingly  idle.  Within  a  year  the  extent  of 
unemployment  would  cease  to  be  serious 
and  within  three  years  it  would  become 
practically  non-existent. 

The  mechanism  of  this  result  is  very 
simple.  In  every  business  there  are  pro¬ 
ducers  now  making  just  enough  to  hold 
on;  sometimes  they  operate  on  part  time 
or  shut  down  altogether.  There  are  also 
other  men  ready  to  enter  the  business  if 
costs  are  lowered  just  enough  to  make  it 
profitable  to  go  to  work.  A  slight  rise  in 
cost  drives  the  first  group  out  of  business 
and  a  slight  fall  starts  the  other  group 
working.  Since  taxes  are  a  part  of  the 
cost  of  doing  business,  a  substantial  re¬ 
duction  therein  would  immediately  lead 
new  men  back  by  capital  released  through 
lowered  taxes  to  enter  every  line  of  pro¬ 
ductive  business  and  give  employment  to 
the  unemployed. 

Our  public  men  who  are  now  fighting 
for  the  curtailment  of  government  extrava¬ 
gance  and  the  reduction  of  taxes,  and  are 
opposing  the  extension  of  government  ac¬ 
tivity  designed  to  create  jobs  for  the  un¬ 
employed,  are  the  real  friends  of  the  Amer¬ 
ican  workingman. 

LERAND  POWERS. 


MONTHLY  LETTER  TO  DEPOSITORS. 

Just  at  present  the  merchants  who  de¬ 
sire  accommodation  from  banks  may  be 
roughly  divided  into  three  classes.  There 
is  first  of  all  that  much-talked-of  frozen- 
credit  class.  Generally  speaking,  they  are 
now  in  the  hands  of  the  bankers. 

Then  there  is  another  class  consisting  of 
those  who  made  money  between  the  years 
1915  and  1920,  who  enjoyed  handsome  in¬ 
comes  during  those  years  of  good  business, 
who  showed  large  increases  in  assets  for 
that  period  and  who  now  can  also  show  that 


after  their  marking  down  of  inventories 
and  readjustments  of  prices  to  present 
levels  they  are  as  we‘11  off  as  they  were  in 
1914.  It  has  ceased  to  be  a  matter  of 
wonder  to  hear  the  officers  of  our  great 
corporations,  as  well  as  prominent  mer¬ 
chants,  explain  almost  with  pride  that  their 
losses  since  1919,  although  heavy,  have  left 
them  no  poorer  than  they  were  at  the  be¬ 
ginning  of  the  war.  As  a  general  rule  this 
class  consists  of  those  in  various  lines  of 
trade  who  do  the  largest  business,  who  it 
is  perhaps  fair  to  say  are  the  ablest  and 
have  proved  themselves  by  their  past  rec¬ 
ords  to  have  been  successful  money 
makers. 

A  Critical  Period  for  Merchants. 

The  third  class  now  seeking  loans  from 
banks  consists  of  those  who  have  not  been 
regular  borrowers  and  who  have  not  only 
exhausted  all  their  profits  made  in  those 
good  years,  but  are  still  unable  to  sell' 
their  remaining  stocks  of  goods  at  any 
price.  Their  expenses  have  gone  on  as 
usual,  rent,  wages  and  salaries.  The  time 
has  come  with  many  such  when  they  must 
either  get  help  from  the  banks  to  con¬ 
tinue  their  business  yet  a  little  longer  until 
the  hoped-for  customers  come,  or  else  give 
it  up,  and  admit  that  they  cannot  make 
good.  The  present  phase  of  business  evo¬ 
lution  is  an  extremely  critical  period  with 
such.  There  is  the  small  retailer  who  is 
simply  doing  no  business;  the  jobber  who 
has  a  stock  of  goods  which  for  the  time  is 
wholly  out  of  fashion;  the  manufacturer 
who  makes  something  for  which  at  the 
moment  there  is  no  demand.  At  no 
previous  period  of  our  economic  life  has 
there  been  such  a  large  number  of  busi¬ 
ness  men  at  any  one  time  in  this  position. 
Many  such  cases  amounting  almost  to 
tragedies  are  actually  going  on  almost 
under  our  very  eyes.  In  a  broad  way  we 
call  it  a  shakedown  in  business,  meaning 
that  certain  merchants  will  be  forced  by 
the  new  conditions  coming  upon  us  to 
abandon  the  occupations  of  a  lifetime, 
their  stores  or  their  warerooms,  once  pros¬ 
perous  and  well  patronized,  and  accept 
subordinate  positions  perhaps  at  low  salar¬ 
ies  rather  than  face  starvation  any  longer, 
waiting  for  the  business  that  does  not 
come  back.  There  are  thousands  of  such 
cases  at  present.  They  are  not  like  the 
ordinary  business  failures  common  enough 
at  all  times.  These  men  are  not  bank¬ 
rupts  in  the  sense  of  owing  too  much 
money.  Many  of  them  owe  little  except 
for  rent. 

May,  1922.  GEORGE  S.  MUMFORD. 


45 


FUNDAMENTAL  PROBLEMS  OF 
FEDERAL  INCOME  TAXATION 

We  quote  from  Prof.  T.  S.  Adams,  page 
528,  August  number  Quarterly  Journal  of 
Economics.  Plainly,  there  is  “something 
the  matter  with  the  income  tax.”  About 
the  necessity  of  thoroly  revising  the  in¬ 
come  tax  law  at  this  session  of  Congress 
there  is  general  agreement.  But  what  are 
the  deeper  defects,  to  what  extent  and  in 
what  way  can  they  be  corrected?  To 
what  extent  is  it  hopeless  to  look  for  a 
real  remedy?  And  finally,  are  the  incur¬ 
able  defects  so  grave  that  we  should  seek 
a  substitute  more  promising — or  less  re¬ 
pulsive?  *  *  * 

“Hard  cases  make  bad  laws.”  Restora¬ 
tion  to  health  is  not  to  be  found  in  the 
desperate  remedies  that  kill  or  cure.  It 
is  to  be  found  in  a  return  to  bearable  and 
enforceable  rates.  Considering  the  morale 
of  the  taxpayer,  as  it  is  now  and  as  it 
can  be  made  in  the  next  few  years,  the 
volume  of  tax-free  securities  outstanding, 
the  weakness  of  the  administrative  ma¬ 
chine,  and  the  years  that  will  be  required 
to  perfect  it,  the  simple  truth  is  that  we 
are  overburdening  the  business  income 
tax.  Nothing  is  more  common  in  the  his¬ 
tory  of  taxation  than  the  demoralization 
of  what  has  been  a  good  tax,  as  taxes  go, 
by  increasing  its  rates  until  the  breaking 
point  is  reached. 

Tax  morality.  It  should  never  be  for¬ 
gotten  that  the  income  tax  rests  for  its 
success  primarily  upon  the  honesty  of  the 
taxpayer.  If  taxpayers  generally  desire  to 
destroy  or  falsify  records,  it  is  in  my  opin¬ 
ion  practically  impossible  to  prevent  it. 
The  morale  of  the  taxpayer  may  be  de¬ 
pended  upon  so  long  as  the  rates  do  not 
“reach  his  price.”  But  when  the  tax 
takes  more  than  one-half  of  the  income,  the 
honesty  of  the  taxpayer  beyond  doubt  be¬ 
gins  to  crumble.  In  my  opinion,  except 
in  time  of  war  or  emergency,  it  begins  to 
crumble  when  it  takes  more  than  one- 
third  of  the  income.  All  other  aspects 
of  the  question  are  more  or  less  in¬ 
significant  compared  to  this.  Extreme 
rates  disintegrate  the  very  foundation  of 
the  tax.  It  is  well  to  remember  that 
the  favorable  opinion  of  the  income  tax 
which  has  been  created  in  the  last 
generation  or  two  rests  for  the  most  part 
upon  experience  with  income  taxes  which 
did  not  exceed  6  per  cent.  When  the  Wis¬ 
consin  income  tax  with  a  maximum  rate 
of  6  per  cent,  was  adopted  in  1911,  it  was 
regarded  as  an  experimental  and  in  many 
respects  as  an  extreme  tax.  The  world 
has  had  no  experience  over  any  consider¬ 


able  period  of  time  with  national  income 
taxes  carrying  rates  in  excess  of  12  or  15 
per  cent.  *  *  * 

I  am  now  inclined  to  believe  that  a  tax 
upon  expenditures  offers  the  best  solution, 
although  no  final  opinion  can  be  expressed 
until  a  draft  containing  the  details  of  such 
a  tax  has  been  worked  out.  However,  at 
present,  I  can  see  no  grave  difficulties  in 
the  proposal,  and  its  practical  advantages 
would  be  very  great.  The  taxpayer  and 
the  government  both  would  be  spared  the 
great  difficulty  of  determining  deprecia¬ 
tion,  depletion,  amortization,  and  all  those 
difficult  items  of  estimated  expenses  which 
rest  upon  valuation  and  judgment.  The 
inventory  problem  would  disappear.  Most 
of  all  we  should  avoid  the  difficulty  pre¬ 
sented  by  the  tax-free  bond. 

fThe  tax  on  expenditures  would,  of 
course,  present  its  own  peculiar  problems. 
There  is  some  little  question  about  its  con¬ 
stitutionality.  It  would  be  necessary  to 
draw  a  line  between  personal  expenditures 
and  expenditures  for  profit.  Expenditures 
made  on  “gentlemen’s  farms”  and  shoot¬ 
ing  preserves;  real  estate  taxes  paid  on 
farms  and  homes,  would  raise  nice  ques¬ 
tions.  Obviously  such  a  tax  could  not 
serve  as  the  principal  tax  on  business. 

t  (None  of  these  objections  apply  to  the  1  per 
cent  Commodity  Sales  Tax,  which  should  be  the 
sole  tax  on  business,  and  in  conjunction  with  the 
graduated  personal  income  tax  as  an  equalizer.) 

Basis  of  the  Business  Tax. 

Shifting.  We  may  go  at  once  to  what 
impresses  the  writer  as  the  most  potent 
argument  or  series  of  arguments  against 
the  tax  on  business  income.  “All  taxes,” 
it  is  urged,  “are  shifted.  It  is  unneces¬ 
sary  and  unwise,  therefore,  to  saddle  busi¬ 
ness  with  taxes  which  achieve  a  sem¬ 
blance  of  equity  at  the  expense  of  sim¬ 
plicity,  certainty  and  administrative  effi¬ 
ciency.  Let  taxes  be  simple,  certain  and 
plain;  their  equitable  distribution  will  be 
achieved  through  the  inevitable  processes 
of  shifting  or  diffusion.”  There  is  truth 
in  this.  *  *  * 

The  real  case  against  the  taxation  of 
business  on  the  basis  of  net  income  rests 
upon  the  very  real  complexity  involved  in 
its  computation.  It  is  unnecessary  to  di¬ 
late  upon  this  theme.  The  weakness  of 
the  net  f  (business)  income  tax  in  this  re¬ 
spect  has  not  been  exaggerated.  And 
complexity  is  a  major  evil,  involving  the 
taxpayer  in  a  cloud  of  uncertainty,  stimu¬ 
lating  evasion  and  rebellion,  clogging  the 
administrative  machine,  and  bringing  the 
tax  into  disrepute.  *  *  * 

flmpose  the  “1  per  cent  Sales  Tax  in  place  of  all 
other  tax  obstructions  to  business."  See  page  26, 
paragraph  2. 


46 


